Ramifications of a BRICs World Bank – Update

The first time I reported on this issue it was March 28, 2013. At the time there was talk of a BRICs Bank being established. Recently I read David Marsh’s piece on Marsh on Monday who informed us that such a bank was actually established. It is called NDB (New Development Bank) and was started about two weeks ago in Beijing.

The reason as to why this occurred is many. The BRIC countries (Brazil, Russia, China and India) do not like the hegemony established by the World Bank and the IMF. They especially don’t like the notion of those banks being run by what they deem is majority of North American/Europeans. They feel that their respective countries aren’t being properly represented even though (in their minds) their countries’ economies are contributing more to the wealth of the world. In other words, they wish to create a competing factor to the hegemony held by North America and Europe. This will represent a major shift from the current view. Namely that all foreign trade transactions are conducting using the USD. China especially doesn’t like this. How many times have you heard US politicians complaining about the unfair advantage the Chinese have with the renminbi? Now Russia has joined that choir as recent sanctions will make it more difficult for them to conduct trade in light of the recent events concerning the Ukraine. In fact the Russian stock market has dropped dramatically in recent weeks as the issue with Malaysian Flight 17 and the sanctions imposed are starting to take effect. Last week the Bank of Russia hiked interest rates from 7.5% to 8% citing “political tensions” as the reason.

This means that Comrade Putin won’t be free to flex his “strongman” muscle as he would like to. His popularity ratings soared to 83% after all this. Hasn’t he restored prestige to Mother Russia? Didn’t we Russians just annex the Crimea from Ukraine without firing a shot? Didn’t we just have a Winter Olympics? Nazi Germany had a Summer Olympics in 1936 and immediately thereafter annexed Austria and the Sudetenland without firing a shot.

So it would appear that Russia has a vested interest in seeing this new bank succeed. They don’t wish to be subservient to the USD when comes to international trade. The next question that comes to mind is where will this bank be located and what currency will be used? My take on this is probably Shanghai as the Chinese financials markets are there and the currency will probably be the renminbi. But I wouldn’t rule out the prospect and possibility of these countries creating their own currency liken to the Euro. This possibility is not unknown in North America as former President Bush tried to do this with the Amero. The Amero was supposed to be a combination of the Canadian dollar, the US dollar and the Mexican Peso. This notion went absolutely nowhere as when the US Congress heard that the US dollar would be pegged to the Peso they shot it down immediately. It has never resurfaced.

Who will run this bank? The idea behind this is each respective country will have a leader chosen from that country to run the bank for one term. After which the next country will choose a leader and so on. This makes sense as it doesn’t allow hegemony to take root.

All in all it is yet to be determined how this New Development Bank will work in the scheme of world affairs. There is something to be said about the stability of the US Dollar. The US Dollar is the only currency backed by the US government. No other currency can make that claim. Knowing this countries, companies or anyone involved in international trade feel quite safe when dealing with the US dollar. Could the same be said for the New Development Bank? Only time will tell…

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Nick Mastrandrea
About the Author
Nick Mastrandrea is the author of Market Tea Leaves, a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to all subscribers. [space height="20"] [social type="twitter"]https://twitter.com/MarketTeaLeaves[/social] [social type="google-plus"]https://plus.google.com/u/0/100398191873287497330/posts[/social] [social type="youtube"]https://www.youtube.com/user/MarketTeaLeaves[/social]

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