Friday, August 1, 2014

BRICs with aggressive look and may not repeat the mistake of Euro-zone.

6th BRICs summit in Fortaleza, Brazil will be remembered for $100 bn BRICs Development Bank & Reserve Currency Pool. China is the highest ($41) contributor of this $100bn CRA while newest member South Africa with $5bn & rest with $18 each. There is also creation of BRICs Stock Alliance to cross list derivatives and proposal of Energy Alliance.

BRICs nations have around 20% of world GDP but they have just 10.3% for the IMF quota and not only that the presidency of this IMF is reserved for a European. Somewhere I was seeing GDP & IMF voting right figures of some nations –

US – 19.2% of global GDP, share of IMF voting rights 16.8.

China – 16.1% of global GDP, share of IMF voting rights 3.8.

India – 6% of global GDP, share of IMF voting rights 2.3.

Russia – 2.9% of global GDP, share of IMF voting rights 2.4.

Brazil – 2.8% of global GDP, share of IMF voting rights 1.7.

South Africa – 0.7% of global GDP, share of IMF voting rights 0.8.

Big changes come in economic numbers of many nations in last few decades but no change in their voting rights. There were lot of talking about IMF reforms but these reforms were never ratified by authority of those nations which control IMF & World Bank. In this situation BRICs Bank is a serious challenge to IMF & World Bank because here each member has equal say irrespective of their GDP size.  

Now, why should we think about this $100bn BRICs Bank?  This is because, BRICs provides –

41.6% of world population (2.99bn) & 26% of the land mass.
19.8% of world GDP ($15.8tn), though 30% of the world GDP based on PPP (which may be more correct valuation).
16.9% of world import & export ($3.19tn + $2.95tn).
BRICs is the world largest market and accounts for 11% of the global capital investment & trade turnover which doubled in last 5years.

BRICs is the best reflection of the international community than so called other leading institutions like IMF & World Bank, which are controlled by few nations. To compete in existing global economic situation it needs a big liquid financial market and BRICS bank can give that.

There are some expectations

1)    According to 5th summit in Delhi at 2012, member nations have agreed to provide credit facilities to each other in local currency, this in turn gives them freedom from US Dollar & Euro. I think they should create a Single Currency or similar thing which can be used for business or import/export. Every other nation of BRICs should set their currency according to it. It will be better if the BRICs bank fixes the exchange rate & does not allow a free float and every member state will fix their currency rate according to it. This fixation may be on hourly/daily/weekly basis. I think this way member nations may use it to improve their import/export and thereby maintain their own interest. But this arrangement does not mean that their currencies are not available for trading. I think even with virtually fix exchange rates scopes are there about future predictions in derivative market, so no disappointment for currency traders.

2)    BRICs bank is big step for future but they need to think more aggressively. What I am seeing that there is a huge opportunity of creating a big financial system if they work in a constructive manner. Let say, a new system can be introduced like a Single platform for Financial Market, for say where shares of companies of these BRICs nations should be listed and general public of these nations can trade on those stocks. Other option is, they can open doors of their own stock exchanges for the member states but that may take some time. Same approaches can be used for Currency and Bond also, therefore BRICs financial market will become bigger & investors will get near about 24 hours daily to invest or trade.

3)    They can create a BRICs Credit Rating Agency. It will be better if BRICs Bank makes its rating compulsory for different banking activities, for say infrastructure loan.

4)    There can be agreements like NATO, for both economical & other matters.

Let talk about some precautions

First, do not create another Euro-zone in hurry. Please do not make any attempt to expand BRICs like Euro zone and if there is any future aim then that should be based on pure fundamentals not just to increase the quantity, otherwise situation of that BRICs & their currency system will be just like Euro zone. Mexico, Argentina & Indonesia, Turkey & Iran may become future members of expanded BRICs…. but debt of some of them may become a problem because no one wants to see a repetition of Euro-zone PIIGs problem. Argentina’s default related problem, what we saw this week is not a good example.

Secondly, it is important that there should not be any nation in BRICs… with fiat currency system. For say, in future if Mexico approves silver to back their currency or any similar step then that may sound good.

Lastly, member states must come with free minds, let talk about two Asian giants India & China, they need to solve their border problems between themselves because in reality there is no problem on the ground, sometime it is only seen in media headlines and why? Perhaps we can understand that. It will be better if any one of them takes the first step thinking about the bigger future, because without this there is virtually no confusion between these two friendly economic giants. It is good that future world’s financial hub (BRICs bank) will be situated in our neighbor’s land.

I think these new BRICs efforts may act as an alternative voice on different matters. As a citizen of one of this BRICs nation I am expecting a very good future from this new look of BRICs.... and as a trader in financial market I will be looking for bigger trading market with lot of varieties.

NOTE Please see the disclaimer of this blog.


  1. One of my friends asked me, whether there is any chance that Germany is joining BRICs?
    I told him that – BRICs should make it rule that it is a place with no Fiat Currency System (nation). So if that front is ok, then it does not matter whether you are in western side or eastern side, developed or under-developed side.

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