BRICS nations pressing for monetary shake-up

08:12, April 15, 2011      

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President Hu Jintao (center) is pictured with (from left) Indian Prime Minister Manmohan Singh, Russian President Dmitry Medvedev, Brazilian President Dilma Rousseff and Jacob Zuma, president of South Africa, the new member admitted to the BRICS group, shortly after the one-day BRICS summit closed in the southern Chinese resort of Sanya yesterday. The Sanya Declaration, issued after the summit, outlined the countries' future cooperation and their decision to deepen exchanges and cooperation.

The BRICS group of emerging-market powers yesterday kept up the pressure for a revamped global monetary system that relies less on the dollar and for a louder voice in international financial institutions.

The leaders of Brazil, Russia, India, China and South Africa also called for stronger regulation of commodity derivatives to dampen excessive volatility in food and energy prices, which they said posed new risks for the recovery of the world economy.

Meeting on the southern Chinese island of Hainan, they said the recent financial crisis had exposed the inadequacies of the current monetary order, which has the dollar as its linchpin.

What was needed, they said in a statement, was "a broad-based international reserve currency system providing stability and certainty" - thinly veiled criticism of what the BRICS sees as Washington's neglect of its global monetary responsibilities.

The BRICS is worried that America's large trade and budget deficits will eventually debase the dollar. They also begrudge the financial and political privileges that come with being the leading reserve currency.

"The world economy is undergoing profound and complex changes," President Hu Jintao said. "The era demands that the BRICS countries strengthen dialogue and cooperation."

In another dig at the dollar, the development banks of the five nations agreed to establish mutual credit lines denominated in their local currencies, not the US currency.

The head of China Development Bank, Chen Yuan, said he was prepared to lend up to 10 billion yuan to fellow BRICS, and his Russian counterpart said he was looking to borrow the yuan equivalent of at least US$500 million via the bank.

"We think this will undoubtedly broaden the opportunities for Russian companies to diversify their loans," Vladimir Dmitriev, the chairman of VEB, Russia's state development bank, told reporters.

The call by the BRICS for a new monetary order are not new.

But, coming hours before a meeting in Washington of finance ministers from the Group of Seven industrial nations, the traditional power brokers of the world economy, yesterday's communique showed the growing confidence of emerging markets.

Burdened by heavy debt, the US, the euro zone and Japan are struggling to shake off the lingering effects of the 2008 global financial crisis. Rich countries will grow 2.4 percent this year and 2.6 percent in 2012, the International Monetary Fund forecast this week.

By contrast, less well-off countries have emerged relatively unscathed. The IMF is forecasting that emerging and developing countries will grow 6.5 percent both this year and next.

The leaders reviewed the global role of the Special Drawing Right, the IMF's accounting unit and reserve asset, which some experts believe could grow into a partial substitute for the dollar.

But they stepped around the issue of whether the 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.

Though keen on a more diverse global monetary order, China has given no indication that it is ready to make the yuan freely tradable or to dismantle capital controls as the price for being part of the SDR.

Swings in commodity prices are also a prime area of concern for the BRICS. China is the world's biggest importer of many commodities; the other BRICS members are major exporters of natural resources.

China hopes the group will agree on a common stance on commodity price fluctuations at the G20 summit in Cannes in November.

Source: Shanghai Daily
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