Almost under the Radar screen

Posted on March 28, 2013


The political and economical world is focused on Cyprus. A relatively small country, whose economy is only 0.02 percent of the Eurozone market. Yet, the rhetoric and actions that are coming from the leadership of Cyprus and EU ministers are impacting the volatility and movement of the world’s major currency, stock, and bond markets.  During these same anxious days, the leaders of the BRICS nations (Brazil, Russia, India, China, and South Africa) have been holding their annual summit that could change the financial system landscape as we now view it, in the not too distant future.

The BRICS countries, with combined foreign exchange reserves of $4.4 trillion and account for 43% of the worlds’ population, are seeking greater influence in global finance. The U.S. has failed to approve a 2010 agreement that would confer more authority to emerging markets at the IMF. One of the initial key goals of this recent March 2013 gathering was to consider the creation of a new banking institution that would challenge and infringe on the role of the World Bank and the International Monetary Fund. India recommended the bank a year ago amid criticism from developing nations that the World Bank and IMF weren’t doing enough to address underdevelopment, and that Western nations have too much say over their management.

While this last conference did not result with a final formula and a decision on how to finance this development bank, they did approve a $100 billion currency fund to contest currency crises. “The establishment of a self-managed contingent reserve arrangement would have a positive precautionary effect, help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability,” South African President Jacob Zuma said after leaders from the five nations met in Durban.

Trade within the BRICS group swelled to $282 billion last year from $27 billion in 2002 and may reach $500 billion by 2015, according to data from Brazil’s government.  “Foreign direct investment into these nations reached $263 billion last year, accounting for 20 percent of global foreign direct investment flows, up from 6 percent in 2000”, the United Nations Conference on Trade and Development said on its website this last March 25th.

And while the worlds’ attention has been dominated by the thousands of students and bank workers protesting in the streets of Nicosia, the capital of Cyprus, China and Brazil were agreeing to a $30 billion per year foreign exchange swap line in their own currencies, allowing them to bypass the dominating sphere of influence of the U.S. dollar zone. Is this a harbinger of future techniques to overcome, and perhaps supplant the U.S. dollar’s role as the only real reserve currency of the world?

Perhaps the financial world has become desensitized to the ongoing European quagmire.  The problems and issues in Cyprus are of major concern and the final outcome can have an interminable result, or it can be just another shoe that has dropped.

This last BRICS, soft media coverage, convention could be just the calm before the storm.

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