It’s going to be a active, anxious and challenge-laden International Monetary Fund meeting in Washington this month.
There, the financial glitterati will fight a bewildering range of hot-button issues ranging from China’s decline to Germany’s crisis to geopolitical risks everywhere to a toss-up US election that’s screening nerves everyday. Put in the IMF’s instructions about a US$ 100 trillion people loan timebomb.
Amazingly, Washington may become hosting this week’s next most effective economic gathering. The more enthralling function will be in Moscow, where the BRICS countries are holding their annual conference.
Some observers predicted that the grouping, which combines Brazil, Russia, India, and South Africa, would eventually have been a sideshow. In 2001, then-Goldman Sachs analyst Jim O’Neill coined the BRIC acronym. In 2010, the four original users added South Africa.
In the decades since, the BRICS seemed to reduce forward thrust. In a 2019 review, Standard &, Poor’s said the union had lost impact.  , Around that same day, O’Neill himself took some photos at his design.
O’Neill recently wrote that” the divergent long-term financial direction of the five states weakens the scientific value of viewing the BRICS as a clear economic grouping.” According to some people, I’ve made jokes about how appropriate it would have been to call the name “IC” , given the obvious debacle of the Portuguese and Soviet economies in the last decade since 2011, both of which have obviously performed significantly worse than  , what the 2050 scenario path laid out.
However, the BRICS have since recovered some of their momentum and are now adding five more users. This year, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates may join the slide.
Mariel Ferragamo, an analyst at the Council on Foreign Relations, information that” the addition of Egypt and Ethiopia will intensify tones from the African continent. Egypt likewise had close business ties with China and India, and social ties , with Russia”.
As a fresh BRICS part,  , Egypt” seeks to , get more investment , and increase its damaged economy”, Ferragamo information. ” China has long courted Ethiopia, the third-biggest business in sub-Saharan Africa, with , billions of dollars of investment , to make the region a hub of its Belt and Road Initiative. The addition of Saudi Arabia and the UAE would send in the , two biggest economies , in the Muslim world and the next and eighth major oil producers internationally”.
The schedule of this growth dovetails with a major BRICS plan: de-dollarization.
The BRICS announced plans to create a “multilateral online lawsuit and pay system” called BRICS Bridge in February, which “would help bridge the gap between the financial markets of BRICS member countries and promote joint trade.”
According to reports, the gathering this week will use a new strategy to make efforts to replace the US dollar more quickly. Udith Sikand, an analyst at Gavekal Dragonomics, notes that one idea is for a gold-backed BRICS monetary unit.
According to Sikand, it seems unlikely that any single currency could get past this compulsion to completely replace the US dollar’s central role.
” A wide range of currencies could, in a more multipolar world, theoretically chip away at their enormous role. The logical consequence of a change would be that while the dollar is still important to global trade and capital flows, its ability to serve as a safe haven when stress is diminished as investors weigh their options from a myriad of alternatives.
The West needs to understand how much it makes the BRICS more comfortable. After all, this opening for the Global South is largely attributable to the Bretton Woods gang messing up their individual economies and, consequently, the global system.
Take the US, which is rife with political chaos at a time when the nation’s debt is over$ 35 trillion. The risks posed by the upcoming , November 5 election alone have credit rating companies on edge, particularly Moody’s Investors Service, which is the last to assign Washington a AAA grade.
Germany is flatlining, highlighting headwinds bearing down on the broader continent. As Germany’s Economy Ministry puts it, “economic weakness likely continued in the second half of 2024, before growth momentum gradually increases again next year”, adding that “technical recession” risks abound.
The European Central Bank’s decision to cut rates for the third time this year last week highlights the level of concern.
Allianz Global Investors ‘ global chief investment officer, Michael Krautzberger, claims that” this increase in the speed of rate cuts is justified because the combination of sub-trend euro growth and target inflation supports a much less restrictive monetary policy than is currently the case.”
Krautzberger adds that” there are some hopes that recent Chinese policy support will help trade-sensitive markets like Germany, but we doubt that will be sufficient to offset the region’s weak domestic demand picture.” There is also a chance that trade disputes will return to the policy agenda after the upcoming US elections in November, adding to the risk of negative growth.
Making matters worse, according to the US and China’s combined borrowing patterns, public debt levels are projected to reach$ 100 trillion this year.
” Our forecasts point to an unforgiving combination of low growth and high debt – a difficult future”, says IMF managing director , Kristalina Georgieva. ” Governments must work to reduce debt and rebuild buffers for the upcoming shock, which will undoubtedly occur, and perhaps sooner than we anticipate.”
Such unthinkable debt levels pose a serious and immediate threat to the world financial system. In a recent report, IMF analysts wrote that “higher debt levels and uncertainty surrounding fiscal policy in systemically important countries, such as China and the United States, can lead to significant spillovers in the form of higher borrowing costs and debt-related risks in other economies.”
These spillovers could make monetary policy decisions in both Asia and the world more difficult.
Officials from the Bank of Japan are declaring their intention to keep raising rates in Tokyo. Yet that’s despite data showing renewed weakness in retail sales, exports, industrial production and private machinery orders. and concerns among ministry of finance officials about the potential return of deflationary forces in the months to come.
Even though inflation is easing in Japan,” the central bank has made clear that it will raise interest rates”, says Danny Kim, an economist at Moody’s Analytics. ” At best, this will slow growth. At worst, it could trigger a wider economic decline”.
All of this raises the question of whether the world’s top economies are complacent about potential dangers.  ,
As officials arrive in Washington, there’s considerable relief that the US has n’t experienced the recession that the vast majority of economists predicted. Or that China’s downshift had n’t pushed mainland growth too far below this year’s 5 % target.
However, there is reason to believe that this is the last sigh before the storm. The geopolitical path is as dangerous as they can get. Middle East tensions are rising as Russia’s war against Ukraine drags on, aside from the ominous debt milestone that the IMF has flagged. And then there’s the return of the” Trump trade”.
Polls indicate a close race between Kamala Harris and former US President Trump. The betting markets, though, suggest Trump might prevail. If so, Asia could quickly find itself in harm’s way.
Trump’s threat to slap 60 % tariffs on all Chinese goods is just the beginning. Many people predict that a Trump 2.0 administration will impose much higher taxes and trade restrictions, wreaking havoc on Asia in 2025.
Even if Trump loses to Harris, he’s hardly going to accept defeat and move on peacefully. Many people are already concerned that their supporters may launch an attack on the US capital to protest his demise because the election was stolen. That’s likely to imperil Washington’s credit rating anew and spook investors pushing Wall Street stocks to all-time highs.
The fallout from the Trump-inspired January 6, 2021 insurrection was among the reasons Fitch Ratings revoked its AAA rating on US debt, joining Standard &, Poor’s. The question now is whether Moody’s downgrades the US, too.
This uncertainty favors the BRICS. Southwest Asia is also clearly orienting its attention toward the BRICS countries.  , All this is a global game-changer that few in the West saw coming.
Earlier this year, Malaysia detailed its ambitions to join the intergovernmental organization. Thailand and Vietnam are also interested in joining the Association of Southeast Asian Nations, which is a group of nations. In Indonesia, an increasing number of lawmakers are BRICS curious, too.
Joe Biden, the president of the United States, may be dealt a particularly bad blow by Southeast Asia’s involvement. Since 2021, a regional bulwark has been a hallmark of the Biden era in opposition to China’s growing influence and attempts to replace the US dollar in trade and finance.
The BRICS phenomenon demonstrates a growing stutter in relations between the US and many ASEAN members. This, at a time when , Saudi Arabia , is looking to phase out the “petrodollar”. As China, Russia, and Iran square off against old alliances, Riyadh is making more efforts to de-dollarize.
” A gradual democratization of the global financial landscape may be underway, giving way to a world in which more local currencies can be used for international transactions”, says analyst , Hung Tran at the Atlantic Council’s Geoeconomics Center.
” In , such a world, the dollar would remain prominent but without its outsized clout, complemented by currencies such as the Chinese renminbi, the euro, and the Japanese yen in a way that’s commensurate with the international footprint of their economies”, Tran says.
According to Tran, “how Saudi Arabia approaches the petrodollar continues to be a significant predictor of the financial future as its creation occurred fifty years ago.”
This week in Moscow, that potential future is on full display. Officials in Washington ignore those machinations at their own risk, 800 kilometers away.
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