Brazil nixes BRICS currency, eyes less reliance on ‘mighty’ dollar

2 comments

1. It’s always good to be less dependant on a currency controlled by an unreliable party. The title however doesn’t really say much, it’s an empty phrase in the article that dodges the actual thing.

   >Brazil’s BRICS presidency this year will not advance a common currency for the group of major developing economies this year, four government officials said, but its agenda may pave the way for less reliance on the U.S. dollar in global trade.That agenda could draw the ire of U.S. President Donald Trump, who has repeatedly warned the BRICS group, founded by Brazil, Russia, India, China, not to challenge the dominance of “the mighty U.S. Dollar.”

   They are succumbing to the threats. Maybe to not become another Ghadaffy.

2. An exchange currency doesn’t have to be a reserve currency. If it is just a technical thing that tracks some indices, like a composite of several countries’ currencies, then it is probably not going to attract many non-institutional investors. Because it’s just an average, it would be fairly boring.

   If one or more members has high rates of inflation in a given cycle, individuals simply get in and out of it quickly to complete their transactions, but it still it still remains useful for speeding those transactions. This also softens the blow of those same transactions, since you’re dealing with an average. The delta between a direct currency exchange, and an average should in aggregate serve to alter the trajectory of the independent currencies towards the averaged one.

   In an alternate framework, institutional investors could buy up an exchange currency with a fixed supply, whose calculated value is weighted towards how much of that currency is owned by national currencies. Most non-institutional investors would likely steer clear of holding much of it, except in times of local uncertainty. This could be curbed by having non-reciprocal tariffs on the exchange currency, making it less attractive to use the exchange currency for purchasing domestic goods in one’s own country.

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