BEIJING, June 16 -- The leaders of Brazil, Russia,
India and China are gathering in the Russian city of Yekaterinburg today, during
which they are expected to discuss ways to reduce their reliance on the US
On the summit agenda is a long list
of issues ranging from the financial crisis to climate change, but if the four
nations reach any agreement regarding the US dollar's role in their foreign
exchange reserves and cross-border trade, that could lead to an eventual
reshuffle of the international financial order.
"This is an opportunity for the BRIC nations to
discuss the roadmap for a super sovereign reserve currency," said Li Wei, a
professor of economics with Cheung Kong Global School of Business.
Days before the opening of the summit, Russian
President Dmitry Medvedev proposed that countries use a mix of regional reserve
currencies to reduce reliance on the dollar. The subject may be on the agenda
when he meets his counterparts in Yekaterinburg, the Kremlin said this month.
Russia's central bank later said it planned to reduce
the proportion of foreign exchange reserves it has invested in US Treasury bonds
and shift some into bonds issued by the International Monetary Fund, and
deposits at commercial banks.
The moves echoed China and Brazil's decision to
invest $40 billion and $10 billion respectively in International Monetary Fund
bonds, a move to diversify their dollar-heavy currency reserves. IMF bonds are
denominated in Special Drawing Rights, or SDRs, an artificial currency used by
China now holds about $2 trillion in foreign exchange
reserves, of which more than 70 percent are likely held in US dollar assets.
BRIC nations hold a total of $2.8 trillion in
international reserve assets excluding gold, 42 percent of the world's total,
according to Bloomberg.
These are the latest indications that reserve rich
nations, like other investors, are increasingly worried about the safety of the
exchange reserves held in US dollar denominated assets. The US Federal Reserve's
decision to buy Treasury bonds and corporate bills, which is, in effect,
printing money, is expected to cause a depreciation of the dollar and a loss for
investors such as China and Russia.
"The risk of capital losses has become urgent because
of the dramatic deterioration of the US fiscal balance and the recovery of risk
appetite by investors," Yu Yongding, an economist with the Chinese Academy of
Social Sciences, said in an earlier interview with China Daily.
"The current crisis shows that one of the fundamental
causes of the crisis is the contradiction between the US dollar as a national
currency and the hegemonic international reserve currency. A roadmap for the
reform of the international monetary and financial system should be put
forward," Yu said.
While the BRIC leaders may discuss how to reduce
dollar assets in their existing reserves, they may also seek to limit the use of
the greenback in their bilateral trades. Analysts said the leaders may seek to
reach agreements that would encourage the use of their local currency in trade.
"The discussion, no matter whether they can turn into
reality, will once again send an alarm of distrust to the US government with
regard to their monetary policy," Wang Tao, an economist with UBS Securities
China signed a deal with Brazil last month, which
would allow some bilateral trade transactions to be conducted in Brazilian reals
and the Chinese yuan.
Over the past months, China has signed currency swap
deals worth 650 billion yuan with six nations, in a major push to increase the
use of the yuan.
(Source: China Daily)
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