The historic importance of events has not always been apparent at the tie of occurrence; often, it has been only much later that objective assessment revealed the the impact of the event on future history; by then, the significance was so obvious that it was thought that anyone at the time should have seen it for what it was.
I have the feeling that the formation of BRICS and the expansion into BRICS+ is one such series of events.
Without reviewing the history of BRICS (Brazil, Russia, India, China, and South Africa), the point here is that it became BRICS+ after the conclusion of its meeting on August 24th, 2023.
The key announcement was that for the first time since 2010 new countries would be added to the membership. Those countries are: Saudi Arabia, the United Arab Emirates, Egypt, Argentina, Ethiopia, and Iran – effective January 1, 2024.
While it only received limited coverage in the US MSM, and much of that coverage casting doubts on its future success, I’m not so certain.
Vladimir Putin announced in 2022 that one of the goals from at the time only BRICS was the creation of a new reserve currency. Speculation then grew that given the large purchases of gold bullion over the previous decade by both China and Russia that a new gold backed currency or the Chinese Yuan would be that reserve currency.
After the 2023 meeting, where BRICS+ formed, there was no announcement of a new currency, except to say there were “no immediate plans”. However, the addition of Saudi Arabia, after its past announcement about accepting payment for its oil in non USD, gave a hint where this could all head.
Even if only partially successful in its aims, BRICS+ will undermine the role of the US dollar (USD) that has existed since the Bretton Woods agreement of 1944. That agreement was that the USD would be based on gold and all other currencies would be pegged to the value of the USD.
As a reminder, Richard Nixon took the USD off the gold standard in 1971. So if BRICS+ is successful it would represent a return to the form of Bretton Woods with either a gold-backed or commodity-backed currency or set of currencies.
That might not seem like much, but it would directly impact the US and its citizens.
The ability of the US to fund its empire, create dollars out of thin air, and maintain relatively low inflation rates are due to two related things: the Petrodollar and reserve currency status.
As I discussed in another post, the Petrodollar was an agreement between the US and Saudi Arabia in the 1970s. Saudi Arabia agreed to price oil only in USD and would invest its excess dollars in the US ; in exchange the US would arm and protect the Saudi royal family.
As oil was the lifeblood of the world economy, other countries had to trade for oil with USD, this resulted in the inevitable use of the USD for most of the world’s international trade.
Countries chose to maintain their sovereign reserves in USD; they did so by purchasing US treasury bonds. The US offered a liquid bond market; a transparent legal system; and the ability to freely move reserves in and out of the US. There was also confidence in the US and its economy – guaranteeing both the interest due and the face value of the bonds at maturity or sale. Even at this late date, the US still holds 58% of the world’s reserve currency.
But this may all be coming to an end.
Along with everything else reported daily in the US MSM and world media – violent crime, drug abuse, decaying cities and infrastructure, increasing intolerance for differing political views, and over-sold wars and weapons systems, there are concerns about the ability of the US to meet its debt obligations to foreign holders of US treasury bonds – this is the “national debt” reported in financial news. These set the stage for difficulties in future bond sales as well as the risk of countries demanding immediate redemption of all their US treasury bonds.
Finally, seizing Russia’s reserves in US banks in 2022 after the start of the Ukrainian invasion shattered perceptions of the US as a safe store for sovereign funds (it should be noted that most US specialists in global finance and international law opposed the move – but as Obama once said, never underestimate the ability of Joe Biden to fuck things up).
As an added consideration, I think a lot of countries would like to see the US take a fall for its overbearing and often cruel foreign policy, and resent the US’s claim of exceptionalism with its “rules-based international order” in place of established international laws.
All the above sets the stage for what I think of the biggest risks to US citizens in the coming decade.
The loss of the USD as both a reserve currency and the loss of the Petrodollar mean the Fed and the US Treasury will no longer be able to create money through bond sales as they have done frequently over the last several years for funding big projects or handouts.
The USD, no longer protected as the Petrodollar, would float against whatever currencies are used as reserve currencies, and given most of what we consume and use are made overseas will be priced in whatever the dominant currency (or currencies) is, US citizens can expected to pay much, much more for everything. Inflation will roar at levels not seen in the US – think hyperinflation.
It will also likely mean the end of military adventurism abroad, the closure of most of the US military bases around the world, and the shattering of old alliances (think NATO). Those would not necessarily be bad things of themselves, but the transition could be brutal both here and abroad – with, to be blunt, a risk of nuclear war as empires often collapse violently.
Not that any of this will occur in the next months or years, but a process has been started and perhaps five to ten years from now, its impacts will be fully observed.
This isn’t to say the evolution of BRICS+ (and perhaps additional membership) will proceed smoothly. Already, Brazil and India had resisted increasing membership to the six countries named above.
Brazil’s position was that expansion would dilute the role of the five members; also likely is that the addition of Saudi Arabia would reduce its influence as the major oil producer in the organization.
India, prizing its role as independent, has expressed concern that BRICS expansion would turn it more into an anti-West organization intended to fight the West (specifically the US and Europe). In addition, India has indicated it wants to continue using the Rupee for international trade that could draw into conflict with the desires of other BRICS+ members.
China and Russia are cooperating now, but how long that last remains to be seen. An inability to resolve any of their differences would likely collapse the full economic goals of BRICS+
There are many ways this could all evolve. So the dire scenario painted above is not certain.
My point is that we are all now on the yellow BRICS+ road with no guarantee what lies at its end. However, one thing is clear: this is one series of events not to ignore.
