Geopolitical Update : New BRICS currency may usher in unexpected winners & losers
By Christian Takushi MA UZH, Independent Macro Economist, Switzerland – Thu 13 July 2023 (truncated & adapted for public release on 14 Jul 2023)
One month ahead of historic BRICS summit, here a summary of our latest independent assessment.
For many people the years 2020-2022 were full of crises. So many indeed, they may not have noticed what was at stake or the magnitude of the economic war being waged between the West and the East/South. At the current stage of our independent analysis I ascertain that President Biden might have made a big mistake by hitting BRICS and Emerging Markets “too hard too early” in recent years, especially in 2022.
1 Biden hit Emerging Markets too hard too early
President Biden wanted to send a strong message and dissuade them from going ahead with a new reserve currency or from joining the BRICS. Washington’s efforts were not in vain though – It managed to somewhat change the policy course of some nations like India and made others opt for declaring interest rather than applying for membership. Biden threatened New Delhi first, then made massive deal offers. Amplifying on the Ukraine war, it was also able to bring some division between Russia, India and China for several months. Remember some of those emerging and developing nations had been ravaged by COVID .. and soon after also decimated by the simultaneous rise of energy prices, food prices, the steepest rise in US interests rates ever and the strong USD. To make matters worse, Washington limited the access to USD liquidity for them and threatened with severe sanctions on several issues. Although the liquidity constraints were induced by a simmering bank defaults, no one in the West cared about explaining this to the non-Western world.
To our Western media and most investors all those things were completely disconnected, but not for Emerging Markets’ leaders – by 2022 it became obvious for the leaders of Emerging Nations that all this was aimed at them and their plans of a new reserve currency. America was fighting to maintain its reserve currency monopoly – in their view an economic war has been waged on them. Something that took most of them by surprise and thrust them into multiple crises at home.
Unfortunately for the West, a majority of those emerging markets and developing nations became even more convinced about the need to de-risk from the West. More importantly, they learnt a hard lesson – that they had underestimated Washington and that Washington had been listening to their communications. Ideally – for the West – the Biden Administration should have let them go ahead and make their big announcement of their new reserve currency in August 2023, only then releasing the full US arsenal of policy measures .. hitting them on all sides and pushing their project back. If not for good, at least for years. Common sense vs domestic politics: Biden wanted to win the Mid Term Elections in 2022.
One of our working hypothesis that drew our attention back in December 2022 implied that top BRICS strategists had concluded that Washington had been listening to their communications. The confidence level was low, but we monitored it. Six months later, other independent evidence gave substance to that working hypothesis. But in my humble view the BRICS cannot complain about surveillance on them, because in fact they had been too transparent and naive in their communications in first place. I would have told BRICS officials “If you want to challenge the USD, you have to assume America will fight to protect its interests. Washington has the right to do it, every power would do it. You would do it”. Additionally the United States and other world powers use surveillance capabilities to protect their national interests. To some extent BRICS officials had been too naive.
The BRICS and nations like Saudi Arabia have learnt their lesson and are now sending mixed signals, even contradictory signals. They are also fighting in public, which is likely to be “staged”. The BRICS and key candidate states are now deploying disinformation and ambiguity at impressive levels.
Nevertheless, we were expecting that and believe that since February-March 2023 the BRICS leaders clearly favour a multi-pronged phased-out strategy to disperse US retaliations. They don’t have one strategy, but a myriad of strategies. The flexibility in dynamic complexity exhibited by Chinese officials I believe goes beyond that which Western officials can handle with ease.
The BRICS and their key allies have also introduced what seems to be Concentric Information Access (i.e. security clearance). Additionally they are deploying elaborate ambiguity, signal intelligence/diplomatic misinformation. This is not just making it harder for the FED, Treasury, CIA and State Department to foresee their next steps, it has made it also very difficult for investors to position themselves and protect themselves from what lies ahead.
In a nutshell, the closed-ranks Biden Team may have single-handedly dealt a blow to US National Security interests and the US economy for years to come, by forcing the BRICS leaders to take their game to a whole new level. The new BRICS approach and management of their new currency strategy has little similarity with what they featured until mid 2022.
The Biden broadside on the BRICS and its Emerging Markets allies was too multi-pronged, too premature and sadly too close to the invasion of Ukraine. As a result many leaders of emerging and developing nations believed the war in Ukraine was not taken advantage of, it was designed ..
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2 Not one BRICS currency solution
3 Many experts view China through their Western glasses
4 A financial hotline – as important as the Cold War hotline
5 Bifurcation – Two gold prices ?
6 Biggest beneficiary and loser – Irony of Bitcoin, and no gold arbitrage
Summary of the assessment of the BRICS reserve currency strategy
5 BRICS members
10 nations have applied for membership
24 other nations have expressed interest to join (17 out of fear of US/EU sanctions)
1 BRICS member is seen as compromised; to be hedged by making role of Indonesia and Saudi Arabia more powerful and time-phased.
To ponder: BRICS, and its new currency
- Among the key strategic goals: Access Denial of key trading routes (vastly underestimated) and gradual De-Dollarisation.
- Focus on stability and avoidance of sanctions via commodities, Oil, Gas, Gold, Bitcoin etc.
- De-Dollarisation will reduce ability of G7 to enjoy monetary excesses – It will lower the Standard of Living in the West.
- Members and candidates are a Mix of emerging & developing nations.
- Some of these 39 nations oppose NATO, but majority want to stay multi-aligned. The latter desire good relations with G7, but also less exposure to over-indebted G7 economies and their over-printed currencies (USD, £, Euro, Yen..)
- Further increase of energy costs and energy price volatility for Europe
- To impact security situation in the Middle East and Europe substantially
- Many underestimate Washington’s might – It is already deploying multiple policy tools, hurting emerging markets, but also US allies. Maybe Biden admin made a mistake by hitting them in 2022, now BRICS favour a multi-pronged phased-out strategy to disperse US retaliations (ambiguity).
- Markets are wrong about the main beneficiary of BRICS currency strategy and also the main victim.
- Most European and US investors’ portfolios will be caught wrong-footed by the aftermath of BRICS moves and their exposure to geopolitical cluster risks.
There are now more alliances than competing powers. More than ever: there no permanent nor committed friends, only temporary overlaps of common national interests.
Personal comment
If you allow me a bit of US political humour: Maybe having Mr. Robert Kennedy as an advisor in the White House might help balance some of the more hawkish views of the world in the oval office (war on terror, war on fossile fuels, war on violence, war on fake news, war on Russia .. and now war on BRICS). Confrontation is good, but it cannot be our only tool in the kit.
In my opinion the West’s current approach of enhanced confrontation is very risky. It is using sanctions too much and is making several tactical and strategic mistakes that are hurting our own long term interests. A non-nuclear confrontation with Russia-China will be decided by the rest of the world, at the economic front. We can only hope that Washington will shift “tac” to a more sustainable strategy, able to win allies in Asia, Africa, the Middle East and Latin America. Currently (with the exception of 3-4 nations) it is threatening them into action with sanctions or no sanctions.
By Christian Takushi MA UZH, Independent Macro Economist and Geopolitical Strategist. Switzerland – Thu 13 July 2023 (truncated and adapted for public release on 14 Jul 2023)
Geopolitical and economic conditions need close monitoring, because they can change suddenly.
No part of this analysis should be taken or construed as an investment recommendation.
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