ASEAN KEY DESTINATIONS
BRICS Target Dollar
In a statement released at a summit on the southern island of Hainan, the leaders of Brazil, Russia, India, China and South Africa said the recent financial crisis had exposed the inadequacies and deficiencies of the current monetary order, which has the dollar as its linchpin.
“The era demands that the BRICS countries strengthen dialogue and cooperation,” Chinese President Hu Jintao said.
The BRICS are worried about the long-term fate of the dollar because of America’s large trade and budget deficits. They also begrudge the privileges that come with being the leading reserve currency — hence the call for a revamped system that is more stable.
In another dig at the dollar, the development banks of the five BRICS nations agreed in principle to establish mutual credit lines denominated in their local currencies, not the US currency.
The leaders welcomed discussions about the global role of the Special Drawing Right, the International Monetary Fund’s in-house accounting unit and reserve asset, which some experts believe could grow into a partial substitute for the dollar.
But leaders stepped around the issue of whether China’s yuan should join the SDR, saying only that they welcomed discussion of the composition of the SDR’s basket of currencies.
A member-country official said the group was split on whether China’s currency, which cannot be freely exchanged except for trade and investment purposes, met the criteria for being part of the SDR.
“There is a need for a broad-basing of the international monetary system. The SDR is an instrument to do that, but we still have no unanimity on the inclusion of the Chinese currency in the SDR as of now,” said the official, who declined to be identified.
The SDR now comprises the dollar, the euro, the Japanese yen and the British pound. “India has said that the SDR is an accounting mechanism used by the IMF, and countries such as Brazil have also said that this [the yuan] should be convertible first,” he added.
Though keen on a more diverse global monetary order, Beijing has given no indication that it is ready to make the yuan freely tradable or to dismantle capital controls as the price for the prestige of being part of the SDR.
It marked the third annual meeting for the leaders of the four original BRIC nations, and the first for South Africa, which was invited to join the bloc late last year.
Together, the five countries represent more than 40 percent of the world’s population, and their combined GDP accounted for 18 percent of the global total in 2010, according to the International Monetary Fund.
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