In the past several weeks, three of the four BRIC nations — Brazil, Russia, and China —have expressed doubt over the dollar’s reserve status and expressed worries over the U.S. debt. India had been the only BRIC nation that had remained silent on the dollar issue, but that’s changed.
I wasn’t sure if India was going to hop on the bandwagon or not. However, they recently started singing with the rest of the BRIC choir in a chorus against the U.S. dollar.
In fact, on July 6, both Russia and India collectively said that the world economy is too reliant on the U.S. dollar and both called for changes in how $6.5 trillion in reserves are managed.
Amazingly, they voiced their concern publicly right before start of the G-8 countries meeting this week in Italy. All eyes will be on this meeting since the central bankers are present at this one and not just the finance ministers.
Evidently Russia intends to talk about how much a system based on the dollar and euro is flawed.
Just a few days earlier, economic advisers to India’s prime minister were reported to be urging him to diversify its foreign holdings away from the dollar.
Collectively, these BRIC nations are calling for a change. It may not happen overnight, but the sentiment could affect the greenback immediately.
The four BRIC nations are calling for a good portion of their reserves to be invested in the IMF’s Special Drawing Rights which are linked to a basket of currencies. Brazil, Russia, and China have already diverted some of their reserves into these and also into some newly issued IMF bonds.
It was bad enough for these countries to take this step, as far as the dollar is concerned, but now India is flexing its muscle with its $264 billion in foreign exchange reserves.
So as you can see, as these emerging nations continue to develop, they are gaining more power.
Formerly, any meetings were between the seven or eight of the largest nations in the world. However, more and more we’re hearing about G-20 meetings which include many of the larger emerging-market nations.
So while these guys didn’t even have a voice just a few years ago, now they are having a huge influence in the shape of the global economy as they make a bigger splash in the global pond all the time.
This trend is unlikely to change anytime soon. In fact, the BRIC nations alone have so much in foreign reserves to throw around that they no longer can be ignored. Therefore, they’ve earned the right for their voice to be heard.
The times are changing. More countries are becoming more influential and gaining a bigger say in what is going on in the world. Many of these countries would like to see the dollar’s grip loosened.
This continues to hammer the buck and keeps it in its current downtrend. The only thing that keeps the buck’s decline from accelerating even greater are the voices out there that still say we’re in a deflationary environment.
However, once the next global advance is solidly under way, you will see the dollar’s descent accelerate against the major currencies of the world, but possibly even more against the emerging market currencies of the world such as the Brazilian real, Russian ruble, Indian rupee, and Chinese yuan.
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