BRIC Plans to Fix Monetary System by altering USD Role

The first BRIC (Brazil, Russia, India and China) Summit is underway in Russia which has been conducted parallel to the Shanghai Cooperation Organization (SCO) to address the issues of global financial system. The coincidence of the summits reasserts the fact that the participating nations would be playing a larger role in maintaining regional security and economic development.

The BRIC Summit is understood to have discussed the need for an alternative monetary trading system to save their earnings getting devalued due to the likely US dollar slide in the market triggered by over printing of the greenbacks. In a last week’s address, Russian President Dmitry Medvedev proposed that countries must begin to encourage a mix of currencies in bilateral trade to reduce over-dependence on US dollar.

Medvedev had also proposed to give greater emphasis on the IMF’s Special Drawing Rights. Russia further indicated that $400bn in the US Treasury would be relocated to the IMF. Reserve rich nations including China and Russia have huge holdings in the US Treasury.

BRIC member states hold a total of $2.8 trillion in international reserve assets excluding gold, 42 percent of the world's total. BRIC nations also account for 15 percent of the $60.7 trillion global economy.

Last month, China and Brazil have signed an agreement to integrate respective currencies in their bilateral trade to reduce transaction costs incurred while currency exchange. It should be recalled that China's central bank governor Zhou Xiaochuan had had suggested few months ago to dump US dollar as the global reserve currency and replace it with a different standard run by the IMF.

The summit is learned to have discussed various global issues including climate change and economic crisis besides the reliance on USD. Though it is unlikely to seal a concrete deal on the use of local currencies in bilateral trade, the member nations are expected to reach a tacit understanding in phasing out USD from future trade.

By Jose Roy