00:00While the financial press focuses on the optics of BRICS, the selfie-taking
00:05politicians who know they lack the cloud to confront the dollar, there is a deeper
00:10current of events unfolding beneath the surface. Ford developments suggest BRICS countries are
00:16building a walk-around for the dollar. At ThinkBRICS we focus on three things – the law,
00:23local currency settlements and shipping lanes. These are the places to zero in on BRICS's true
00:30intentions. Today we review four developments. 1. How Ghana's debt crisis encourages developing
00:37countries to consider local currency settlement. 2. How new legislation would protect BRICS countries
00:45from sanctions. 3. How Beijing's security doctrine will secure non-dollar trade routes.
00:524. Why a single BRICS currency is not in the cards for years to come.
00:58Let's begin our review. Let's begin in West Africa with Ghana. Ghana is
01:05sittering on the edge of a fiscal cliff. With public debt forecast to exceed 70% of GDP,
01:12the government is forced to undergo brutal austerity measures with IMF creditors. Like
01:18many developing countries across Africa and Latin America, Ghana depends on the dollar to fund its
01:24budget deficit. This creates a particular vulnerability. Whenever the Federal Reserve in
01:31Washington jacks up interest rates to fight off inflation, the dollar strengthens. That immediately
01:39squeezes Ghana's budget, forcing the government to shell out far more local credits just to service dollar
01:46debt. Often this means tapping into hard-earned reserves just to make the interest payments. This
01:54is why Ghana is seeking partner status with BRICS. Notice I said partner, not full member. Full membership
02:03requires a significant degree of political and policy coordination which comes with long-term institutional
02:11commitments. Partner status, on the other hand, allows participating countries to receive the immediate
02:18benefits of the local currency settlement mechanisms, the LCS. Let's take a closer look at the Ghanaian
02:26economy. Its main exports are gold, cocoa and crude oil. Currently, all three are denominated and traded in
02:36dollars and virtually all transactions occur through correspondent accounts in New York or London. If a
02:43buyer in Asia wants to purchase Ghanaian cocoa, the payment will likely go through a roundabout process
02:51involving capital controls, currency conversions and transaction fees. Under the LCS framework, a portion of
03:00these transactions could be converted into local currency through bilateral swaps or a multilateral
03:06clearing union, such as the BRICS clearing union. Ghana can utilize the New Development Bank to finance
03:13its public expenditures in local currency while importing goods in the currency of its trading partners, rather
03:21than depleting reserves to purchase dollars. Ghana is not seeking to depose the Americans or dismantle the
03:29international financial system. It wants to hedge its bets against capital controls and the volatility
03:35of the dollar. Watch for whether Ghana will sign bilateral trade agreements that specifically allow for
03:43non-dollar settlements in the coming months. Meanwhile, legislators across BRICS are preparing to meet
03:51on a different front. The legal system. Keep a close eye on New Delhi. On October 26 and 27, India
03:59will host the 12th
04:01BRICS Parliamentary Forum under its BRICS presidency. One of the central ambitions on the table is drafting
04:10modal legislation that would shield domestic economies from foreign court decrees. The hope among delegates is to
04:18build a three-pronged legislative safeguard. First, it would provide legal backing for alternative payment rails. So,
04:26transactions flowing through non-swift channels are insulated from foreign regulatory jurisdiction. Second,
04:35it would protect sovereign assets. Following the freezing of over $300 billion in Russian central bank reserves,
04:43developing nations realized foreign domiciled wealth could be immobilized at any time. While domestic
04:51legislation at home can't stop foreign capitals from freezing offshore accounts, the goal is to ensure
04:58sovereign assets parked inside BRICS borders remain shielded from foreign court orders. Third, it would
05:07establish localized localized commercial arbitration centers, ensuring trade disputes are resolved under
05:13domestic rules rather than Western courts. Watch what comes out of New Delhi on October 26 and 27 and whether
05:22parliaments in India, South Africa and Brazil actually move to adopt these modal laws.
05:32Payment systems and legal protections will go so far if the maritime trade routes are vulnerable to foreign interference.
05:42This is where Beijing's proposal comes in. Beijing has drafted a security doctrine aimed at West Asia,
05:50the Middle East. For the last 50 years, the United States has been the sole security guarantor for
05:56energy supplies from the Persian Gulf. This was possible because the US Fifth Fleet was stationed there.
06:04However, there are two factors that have changed the strategic calculus. The United States is now
06:12an energy exporter, while China is the world's largest importer of crude oil with its primary sources
06:20located in West Asia. Leaving China's primary energy supplies to the tender mercies
06:26of a potential rival is not an option. This is why the Chinese proposal calls for a principle of
06:34non-intervention, collective security and economic development through the Belt and Road Initiative.
06:42The security guarantee also includes elements of multilateralism. In effect, Beijing is offering an
06:49energy security guarantee to West Asian exporters in exchange for their commitment to keep energy
06:56payments outside the SWIFT system. This is the connective tissue between the financial and the physical,
07:03ensuring that the alternate payment system has the physical infrastructure to transport goods.
07:09Of course, academic research sheds light on the difficulties of creating an alternate financial system
07:16and the limitations of what BRICS can achieve in the near term.
07:20The first limitation is the convertibility of capital. For any currency to become an international
07:27currency, it needs to be freely convertible. This means allowing foreigners to buy and sell that
07:35currency without minimal restrictions. China keeps its currency partially closed to prevent its banks from
07:42being overwhelmed with foreign liabilities. India has a managed float and also restricts foreign investment
07:51and debt. Until these countries open up their economies to the free flow of capital, a risky proposition in
07:59and of itself, their currencies will not have the liquidity of the dollar. Second, a single currency is nearly
08:08impossible to adopt given the divergent interests of the BRICS nations. While the media speculates about a BRICS
08:16currency, the reality is such a thing is at least a decade away. This is because a monetary union requires
08:24a degree of fiscal coordination between members. Given the divergent interest rates between Brazil, Russia,
08:32India, China, China and South Africa, such a project would be extremely destabilizing.
08:39A third limitation is the tendency for bilateral settlements to create a liquidity trap.
08:47Say, a country A buys oil from country B and pays in country A's currency. Suddenly, country B is
08:55setting on billions in a currency it can't easily spend or convert unless country A sells goods.
09:02Country B actually wants to buy. These are the reasons why, despite the challenges, BRICS countries
09:08are working to create an alternate financial system. The pattern is coming into focus. Ghana shows the
09:16pressure, bilateral deals build the clearing routes, modal legislation provides the shield,
09:22and naval security keeps the straits open. The real question isn't whether BRICS can suddenly
09:29dethrone the dollar, but how much breathing room they can carve out beyond it and how fast.
09:37To deal with all this, we have got to think beyond what we see in the papers. While the mainstream
09:43media
09:43is always chasing what gets clicks, independent coverage of the Global South could be so much better.
09:51If you think this perspective is important and you would like more of this independent analysis
09:56of this economic realignment, please subscribe, share this briefing and leave your comments below.
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10:12that we keep this channel independent and we would love your support in making that happen.
10:18Let us know what you think in the comments section below. Are bilateral trade settlements sufficient
10:24for developing countries or will BRICS have to create its own reserve currency?
10:31Thank you. Thank you for supporting this channel and thanks for watching.
10:35We'll see you next time.
