BRICS vs G7 - The Financial War Intensifies Wealth Week Episode 24
Last week I mentioned how old enemies in the Middle East are cosying up to each other as they seek to move further away from dependence on the West, the dollar and its payment systems. I shared ECB chief Christine Lagarde’s observations about multipolarity and the fact that the world is splitting into two halves.
Well, things are moving so fast that I want to go a bit deeper this week because it’s starting to look like we in the West could be on the losing side of history. The BRICS group will need to change its name to an alphabet soup if it wants to remain an acronym of all its members. This week’s brain teaser is to come up with a name that encompasses Afghanistan, Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Saudi Arabia, Senegal, Sudan, Syria, the United Arab Emirates, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. Here’s my starter for 10 - CRAPPER – Commodity Rich Authoritarians Providing Political and Economic Repression.
Just imagine how powerful BRICS will become if all those Middle Eastern oil producers join in. Already BRICS nations account for $4.5 trillion of trade, up from just $2.5 trillion in pre-Banana Syndrome 2019. When they got together in Cape Town last week there was lots of lobbying from would-be members while South Africa angered the West by saying they’d let a certain Mr V Putin attend their next meeting with impunity from his international arrest warrant. And if you’re not already scared, this next statistic should have you hiding behind the sofa. According to Acorn Macro Consulting , in Purchasing Power Parity terms the BRICS contribution to global GDP now exceeds that of the G7 which comprises the biggest developed nations in what we can still call the West ie the US, the UK, Germany, France, Japan, Italy, and Canada.
The latest IMF forecast up to 2027 suggest that this gap will continue to widen in the BRICS favour. It’s partly a result of their larger and faster growing populations – as we’ve discussed elsewhere, the terrible demographics of the G7 will weigh heavily on future growth prospects. China’s ageing population and the legacy of its disastrous one child policy will be a drag on its growth but India has no such baggage and now has the fastest growing middle class in the world. Our own middle class is fast disappearing under the weight of inflation, over regulation and the ever increasing size of the Deep State. In the UK, a third of all employees now work for the government, up from a quarter a generation ago. That’s why millions of people are being dragged into higher rate taxes to support this growing army of parasites.
The rise in economic power is being accompanied by energetic efforts at de-dollarisation. This is accelerating a trend that’s been in place for some time. Back in 2001 the dollar’s share of global reserves was a whopping 73%. That plummeted to 55% by 2021 and dropped to just 47% a year later. Today over 70% of trade between Russia and China is settled using the rouble or the yuan. When Russia trades with India the transactions are settled in rupees.
Kenya has announced that it will buy oil from Saudi Arabia using Kenyan shillings instead of dollars as a result of a new fuel import agreement signed by Kenyan President William Ruto and Saudi Crown Prince Mohammed bin Salman. According to Kenya's president, “the agreement will allow the country access to all of its fuel needs in the form of a six-month loan and eliminate $500 million in monthly demand in the market”. His words hint at another way in which the traditional Western led financial system led by the IMF and the World Bank is being undermined. Russia and China are engaging in under-the-radar debt forgiveness and bail-outs in Africa and Latin America, no doubt in return for locking up supplies of commodities and rare earth minerals. Russia has cancelled $20 billion of African debt in recent times, while China has established its own rather opaque system for being a lender of last resort. There’s no better example of how much things have changed than that well known failed state, Sri Lanka. The IMF agreed a four year, $3 billion lending programme to try and get this troubled country back on track. How did China, itself an IMF member, respond? It refused to take part in the IMF process and instead agreed an entirely separate debt forgiveness deal. Who knows what the terms were? I think we can assume that they were designed to be in the best interests of the People’s Republic rather than the good old Western rules based system that’s kept the peace since 1945. China has used a combination of liquidity swaps with the Chinese Central Bank and funding from state-owned banks to bankroll these opaque transactions which are another way of giving a great big V sign to the West.