Unlike most readers of this periodical I’m not a huge Twitter person. In other words I rarely check Twitter or am constantly on it to insure that I’m not missing out on anything. Yesterday I was perusing some of my tweets and found an interesting story published by Bloomberg on the prospect of a BRICS bank.
BRICS is the acronym given for Brazil, Russia, India, China and South Africa. Yes South Africa was asked to join in December, 2010 and elected to do so. The story went on to say how these countries were not happy with events surrounding the World Bank, IMF and ECB and want to establish a bank that represents their interests. Apparently they also aren’t happy with the idea that none of their citizens are ever asked to head up these entities as they have a knack of only nominating Americans or Europeans.
This set my mind to thinking “what would the ramifications be if this were to happen”? For one it would completely change the landscape of the global banking community and in effect would change the Bretton Woods conference of 1944. You may be asking what is the significance of that? Why should I care about something that happened in 1944 at the height of WWII? Simply put it was at this conference that world leaders decided that the USD was to the premier currency after WWII. Prior to that, the British Pound held that title but after the attacks on Great Britain by Nazi Germany, the British decided they could no longer hold that title as their priorities shifted to domestic issues, namely rebuilding their country.
It was at this conference that the World Bank and IMF were formed to insure that nations who had a monetary crisis would have a way and means of getting relief. The leaders at Bretton Woods did not want another 1929 on their hands whereby nations had no way of obtaining funds if need be. The question then is, if these nations form their own “World Bank” what will their base currency be? The USD? The Euro? Or will they consider using an existing currency from one of their own nations? If so, which currency? The Russian Ruble? The Chinese Yuan? My guess if they did so it would be the Chinese Yuan as currently China is the strongest (economically) of the BRICS. They could also go another route and establish their own currency.
This is not necessarily a new idea. Look at the Euro after the EU was formed. In North America former US President George W. Bush wanted to establish the “Amero” in tandem with the North American Free Trade Act (NAFTA). But the idea went absolutely nowhere as the United States Congress would never allow the USD to be equated with the Mexican Peso. Let’s face it; George W. wasn’t exactly the brightest light bulb that ever burnt.
In the meantime the BRICS nations are getting serious about doing this, so much so that they’ve agreed to setup a crisis fund of $100 Billion dollars and Brazil has stated that they want the new bank to functioning by 2014. Time will tell how far along they go, but one thing is certain; this will change the global banking community as we know it.