Information Bulletin of the BRICS Trade Union Forum

Monitoring of the economic, social and labor situation in the BRICS countries
Issue 02.2023
2023.01.09 — 2023.01.15
International relations
Foreign policy in the context of BRICS
Qin Gang to Visit Ethiopia, Gabon, Angola, Benin, Egypt, the African Union Headquarters and the League of Arab States Headquarters (Цинь Ган посетит Эфиопию, Габон, Анголу, Бенин, Египет, штаб-квартиру Африканского союза и штаб-квартиру Лиги арабских государств) / South Africa, January, 2023
Keywords: political_issues
South Africa

This is to deepen the China-Africa comprehensive strategic and cooperative partnership and boost friendly cooperation between China and Africa,. This is the 33rd consecutive year that Africa has been the destination of Chinese foreign ministers' annual first overseas visit.

This is in addition to China being part of the BRICS bloc, which controls about 24% of the global GDP, 16% of world trade, and home to 41% of the world's population. The BRICS bloc certainly has the political and economic clout to have a say in the direction the world will take in the next few years.

The BRICS chair and the leader of the group's most important member, Chinese President Xi Jinping, last year gave a keynote speech titled "Fostering High-quality Partnership and Embarking on a New Journey of BRICS Cooperation" on the 23 rd of June.

The speech addressed some of the most pertinent global issues namely peace and security, global development, technological innovation, and global economic openness.

President Xi's speech did not only give the world a peek into the thinking of the world's second largest economy but also painted a picture of US-China polarisation on major global issues.
Xi used the platform to tout his Global Security Initiative which he first proposed in April 2022 which seeks to promote "comprehensive, cooperative and sustainable security" for the world based on the principle of indivisible security. The GSI could be China's way of claiming global leadership and casting itself as a responsible global power in a direct challenge to US dominance. However, China has work to do in convincing important allies such as South and East Asia, Russia, Africa, and Europe to buy into its initiative.

Further, President Xi also delved into global development lamenting the widening global inequality between the developed and the developing regions of the world as a result of weakened international development cooperation. He advanced China's Global Development Initiative as part of the solution to combat rising world poverty and put the UN Agenda for Sustainable Development back on track.

The GDI seeks to promote cooperation and development in areas such as food security, poverty, education, health, and the environment among other things. Once again, through the GDI, China is standing up to fill the global leadership vacuum left by traditional western development partners. The GDI has been endorsed by the United Nations. For regions like Africa whose development prospects have been greatly undermined by the Covid-19 pandemic, the GDI offers an opportunity to reduce poverty amongst their people.

The Chinese President also discussed the state of the global economy raising concerns that the global economic recovery may be reversed. He spoke against the 'deliberate disruption' of vital industrial and supply chains and the rising commodity prices which were causing global inflation.

According to a report by the World Bank, global economic growth estimates for 2022 have been reviewed downwards from the initial 4.1% to 2.9% which is sharp decline from the 5.9% that was achieved in 2021. President Xi encouraged openness, inclusiveness and integration and criticised what he called the "weaponisation of the global economy".
                Investment and Finance
                Investment and finance in BRICS
                Two threats – for the world of people and for the world of finance (Две угрозы — для мира людей и для мира финансов) / Russia, January, 2023
                Keywords: expert_opinion, economic_challenges

                A statue which was displayed at the United Nations in New York, likened to the end-times "beast" from the New Testament's book of Revelation.

                The world is today confronted with two nuclear threats of a proportion never previously seen in history. These threats are facing us at a time when the world economy is about to turn and decline precipitously not just for years but probably decades, writes in his in a detailed commentary Swiss financial analyst Egon von Greyerz, Founder and Managing Partner "Matterhorn Asset Management".

                The obvious nuclear threat is the war between the US and Russia which currently is playing out in Ukraine.

                The other nuclear threat is the financial weapons of mass destruction in the form of debt and derivatives amounting to probably US$ 2.5 quadrillion.

                If we are lucky, the geopolitical event can be avoided but I doubt that the explosion/implosion of the Western financial timebomb can be stopped.

                In my estimation this is not a war between Russia and Ukraine but between the US and Russia. Russia found it unacceptable that the Minsk agreement of 2014 was not kept to. Instead, the bombing of the Donbas area continued, allegedly encouraged by the US. As Ukraine intensified the bombing, Russia invaded in Feb 2022.

                I won't go into the details here of who is at fault etc. But what is clear is that the US Neocons have a major interest for this war to escalate. For them Ukraine is just a pawn and the real enemy is Russia.

                Most of Europe is heavily dependent on Russian oil and gas. Still Europe is shooting itself in the foot by agreeing to the sanctions initiated by the US. The consequences are disastrous for Europe and especially Germany which was the economic engine of Europe. Germany is now finished as an economic power. Time will prove this.

                The global economic downturn started before the Ukrainian war but the situation has now severely deteriorated with the European economy weakening rapidly. Still, Europe is digging its own grave by sending more weapons and more money to Ukraine much of which being reported to end up in the wrong hands.

                The Ukrainian leader Zelensky is skilfully inciting the West to escalate the war in order to achieve total NATO involvement.

                The risk of a major escalation of the war is considerable. The US Neocons want to weaken Russia in a direct conflict. Major wars are often triggered by a minor event or a false flag.

                The Neocons know that a defeat for the US in this conflict would be the end of the US dollar, hegemony and economy. At the same time, Russia is determined not to lose the war, whatever it takes. This is the kind of background that has a high risk of ending badly.

                Since there is not a single Statesman in the West, dark forces behind the scenes are pulling the strings. This makes the situation particularly dangerous.

                The risk of a nuclear war in such a situation is incalculable but still very real. There are 13,000 nuclear warheads in the world and less than a handful of these would wipe out most of the West and a dozen, a major part of the world.

                Let's hope that the West comes to its senses. If not, the consequences are unthinkable.

                The other nuclear cloud which is financial will fortunately not end the world if it detonates but inflict a major global setback that could last many years, maybe decades.

                The global debt expansion will end badly. This can be illustrated in a number of facts and graphs.

                This one shows how global debt has grown 75X from $4 trillion to $300T since Nixon closed the gold window in 1971.

                The graph also shows that the world could reach debt levels of maybe $3 quadrillion by 2030.

                The US, the world's biggest economy, is living on both borrowed time and money. In 1970 total US debt was 1.5X GDP. Today is is 3.6X. This means that in order to achieve a nominal growth in GDP, debt had to grow 2.5X as fast as GDP.

                The conclusion is simple. Without credit and printed money there would be no real GDP growth. So the growth of the US economy is an illusion manufactured by bankers and led by the private Federal Reserve Bank. GDP can only grow if debt grows at an exponential rate.

                The gap between debt and GDP growth is clearly unsustainable. Still with hysterical money printing in the next few years, in an attempt to save the US financial system, the gap is likely to widen even further before it is eroded.

                There is only one way for the gap to narrow which is an implosion of the debt through default, both sovereign and private. Such an implosion will also lead to all assets inflated by the debt – including bonds, stocks and property – also imploding.

                Temporarily the US has achieved this illusory wealth but sadly the time is now coming when the Piper must be paid.

                The days of the dollar as reserve currency are counted. A currency that has lost 98% in the last 50 years hardly deserves the status of a reserve currency.

                A combination of military might, petrodollar payments and history has kept the dollar far too strong for much too long. Since there is no immediate alternative, it is possible that the dollar temporarily will remain strong for a while as the Ukrainian conflict continues.

                The days of the Petrodollar are also counted. Major moves are now taking place between the world's biggest energy producers (excluding the US) which will gradually end the Petrodollar system.

                But firstly let's understand that in spite of the climate zealots, there will be no serious alternative to fossil fuels for many decades. Fossil fuels account for 83% of global energy.

                Global growth can only be achieved with energy. Since renewables today only account for 6% and are growing very slowly, there will be no serious alternative to fossil fuels for many decades.

                In spite of that, Western governments in Europe and the US have not only stopped investing in fossil fuels, but also closed down pipe lines, coal mines and nuclear power plants. This is of course sheer political and economic lunacy and a very rapid method to achieve a collapse of the world economy.

                The GCC countries (Gulf Corporation Council) consist of Saudi Arabia, UAE plus a number of Gulf countries have 40% of the oil reserves in the world.

                Another 40% of oil reserves belong to Russia, Iran and Venezuela all selling oil to China at a discount currently.

                In addition there are the BRICS countries (Brazil, Russia, India, China and South Africa. Saudi Arabia also want to join the BRICS which represents 41% of the global population and 26% of global GDP.

                Finally there is the SCO, the Shanghai Cooperation Organisation. This is a Eurasian political, economic and security organisation headquartered in China. It covers 60% of the area of Eurasia and over 30% of global GDP.

                All of these organisations and countries (BRICS, GCC, SCO) are gradually going to gain global importance as the US, and Europe decline. They will cooperate both politically, commercially and financially.

                As energy and oil is a common denominator for these countries, they will most likely operate with the Petroyuan as their common currency for trading.

                With such a powerful constellation, minor hobbyist groups like Schwab's World Economic Forum will dwarf in significance and finally disappear as the WEF members including the political leaders lose their power and the billionaires their wealth.

                A full nuclear war between the US, Russia and China is the end of mankind and no one can protect against this kind of event.

                To summarise, the risks today are greater than anytime in history, warns the Swiss financial analyst Egon von Greyerz.
                              Upgrading Bretton Woods: A Case for "Currency Baskets" (Модернизация Бреттон-Вудса: пример «валютных корзин») / Russia, January, 2023
                              Keywords: expert_opinion, economic_challenges

                              In recent years, shortages and insecurities have increasingly afflicted the global economy as it was grappling with issues such as supply-side disruptions, energy shortages and food security concerns. In the field of international finance, the world's central banks had their fair share of risks, with one of the key shortages being the sore lack of reserve currencies coupled with few diversification options in allocating currency reserves. These concerns were magnified in 2022 after the escalation of geopolitical risks and the imposition of sanctions on Russia's reserve assets in the hundreds of billions of dollars.

                              Such developments put into question the security of the dollar-centered international monetary system, rekindling discussions on the prospects of new reserve currencies such as the BRICS reserve currency. The new entrants in the international currency reserve space that are likely to emerge may include not only national reserve currencies but also currency baskets. If successful, these new entrants can transform the global monetary system towards greater optionality and lower exposure to geopolitical risks.

                              Yaroslav Lissovolik:
                              G20 Summit of 2022: Bridging the North-South Divide
                              Among the new entrants in the reserve currency space is China's yuan, a national reserve currency that has—slowly but surely—been taking a greater share of currency reserves and transactions in the global economy. Just like the dollar and any other national currency, however, the yuan may be susceptible to country-specific vulnerabilities, sanctions and swings in geopolitical risks.

                              Thus far, an expansion in the pool of reserve currencies composed of national currencies has progressed very slowly, raising the question of whether any significant change in the monetary system is possible, given the sole focus on national reserve currencies. Hence discussions revolving around a BRICS reserve currency as a currency basket that brings together the currencies of India, Russia, Brazil, China and South Africa.

                              The proposal to create a new reserve currency based on a basket of BRICS currencies was first formulated by the Valdai Club in 2018. The idea was to create an SDR-type currency basket composed of the BRICS's five national currencies, potentially involving some of the other currencies in the BRICS+ circle economies. The choice of the composition of the BRICS currency basket had to do with the fact that these were among the most liquid currencies across emerging markets. The name for the new reserve currency — R5 or R5+ — stemmed from the first letters of the BRICS currencies, all of which begin with an R (the real, the ruble, the rupee, the renminbi, and the rand).

                              The new BRICS reserve currency basket could act in concert with the stronger role performed by BRICS national currencies to take on a greater share of the total pie of currency transactions in the world economy.

                              There are a number of advantages exercised by currency baskets such as the proposed BRICS reserve currency. First, there is the reduction in the dependency/exposure to any single country risk, with cross-regional currency baskets reducing the exposure to risks pertaining to any single region. Second, there is the reduction in the risks associated with the high volatility of any single Global South currency, as the platform that brings together currencies from economies with divergent trade profiles and varying exposure to shocks will result in a lower volatility of the currency basket as such. For the Global South, a basket mechanism for the new reserve currency could serve as an incubator of new national reserve currencies. In the case of the BRICS reserve currency, the advanced status of the Chinese yuan could be used to prop up the status and the potential reserve role for the currencies of other BRICS (or BRICS+) nations.

                              Dmitry Razumovsky:
                              What Could Take BRICS Forward?
                              The emergence of new currencies as well as greater use of more national currencies or baskets of national currencies could also reduce the costs resulting from an excessive dollarization of the world economy. Existing research points to significant costs sustained by the countries with relatively high levels of dollarization, with one such study noting that "the presence in residents' portfolio of foreign-currency assets and liabilities (or 'financial dollarization') has been alleged to influence monetary policy in developing economies and, especially, to cause debtors' insolvency in the aftermath exchange rate depreciations (the 'balance sheet effect')… [Furthermore,] financially dollarized economies display a more unstable demand for money, a greater propensity to suffer banking crises after a depreciation of the local currency, and slower and more volatile output growth, without significant gains in terms of domestic financial depth. The results indicate that active de-dollarization policies may be advisable for the many economies [1]."

                              Most importantly, in a world of sharply higher geopolitical risks, a currency basket mechanism becomes one of the better instruments (compared to national currencies) in reducing the exposure to geopolitical risks and economic restrictions emanating from any one single country or region. The reduction of geopolitical risks will be the more significant, the more geopolitical heterogeneity there is in the currency basket. In this respect, a BRICS reserve currency is quite balanced as it brings together differing countries such as China and Russia on the one hand (with significant geopolitical competition with the West) and countries such as Brazil and India on the other (significantly more cooperative relations with the West).

                              For the new currencies to be more competitive on the international stage compared to the "incumbent currencies" such as the U.S. dollar, the new entrants need to carry a legal affirmation of the non-use of such currencies in sanctions or restrictive measures. Such a de-politicization of new currencies would render them significantly more attractive for the Central Banks in the midst of elevated geopolitical risks. A non-sanctions/depoliticization clause could be included into the charter/norms governing the new reserve currency. In the case of regional currencies, this may be undertaken by the respective regional financing arrangements (RFAs), while in the case of cross-regional projects such as the BRICS reserve currency such norms should come from the BRICS Contingent Reserve Arrangement (BRICS CRA).

                              Therefore, the existing global currency represented by a currency basket—Special Drawing Rights (SDR)—has the potential to significantly expand its presence in global currency reserves and currency transactions. It has the benefit of bringing together the most liquid currencies in the world, with the heterogeneity of the basket attained via the inclusion of the four currencies from the advanced economies (USD, Euro, Japanese Yen and the UK's Pound Sterling) as well as the Chinese yuan. The IMF, as the regulator of the SDR, could potentially enhance its role in the global economy through allowing its use in international trade transactions as well as raising its attractiveness as an instrument of currency reserve holdings for the world's central banks. According to a prominent American economist Maurice Obstfeld, "denominating more global reserves in SDR would affect exchange rate volatility among the main reserve currencies primarily to the extent that it reduced potential official demand shifts among those currencies. Were more countries to peg to the SDR as a result, however, their effective nominal (and probably real) exchange rate volatility would fall" [2].

                              Yaroslav Lissovolik:
                              Can BRICS Underpin a New World Order?
                              The IMF itself points to tangible advantages in the greater use of SDRs in the global economy, including with respect to lowering the volatility of financial market instruments: "M-SDRs [SDR-denominated financial market instruments] reduce foreign exchange and interest rate risk relative to single-currency instruments, but there are some drawbacks and challenges. The basket nature of M-SDRs would allow the volatility of returns to be lower than for a similar single currency instrument" [3].

                              Similarly, the establishment of a BRICS reserve currency could well reduce the volatility in the EM currency space, including via the issuance of financial instruments with lower volatility of returns. The R5 could also serve as an important benchmark for other parts of EM—rather than pegging to the U.S. dollar or the SDR, BRICS's regional partners as well as other EM economies could peg their currencies to the BRICS currency basket. The projects of new regional currencies currently entertained by the regional blocks in the developing world (Latin America being one case in point in line with the statements of Brazil's president Lula da Silva [4]) could potentially be pursued on the basis of a basket mechanism and/or with the possibility of pegging the new currency to the BRICS basket.

                              The bottom line is that we are only at the start of what may turn out to be an emphatic expansion in the array of reserve currencies with currency baskets being potentially among the most competitive and flexible instruments in the global economy. Such currency baskets could well include new regional currencies, if and when they emerge, as well as cross-regional currency baskets. The variety of the combinatorics of such reserve currency platforms can significantly expand the optionality of reserve allocation for the world's central banks. The future of the new international monetary system is paved with new reserve currencies.

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