I’m reminded of a friend of mine who ran a coffee shop in Lethbridge, Alberta. If anybody handed him US dollars, he’d shove it back, and say, “Give me some real money.” Meaning Canadian dollars, of course.
US dollars work on world markets in London, New York, and Tokyo. They don’t work at Brian’s Coffee Shop in Lethbridge.
So I guess Canadian Tire bucks are completely out of the question…
I can’t find any breakdown of the amount of Japanese debt issued in USD vs. Yen. Do you have anything?
While I’m no economist, it seems to me that trust is a crucial factor in establishing a reserve currency. Trust that value, exchange rates, interest rates, etc will be handled in a free market and sensible manner. Trust that the assets behind the economy are real, and openly accounted for. That is, for instance, if the reporting agency says public debt is X, it really is X.
I find it hard to imagine anyone outside of Russia, China, or Brazil having that trust in Russia, China, or Brazil.
The Euro took about 10 years of preparation and then was an “invisible currency” used only for specific purposes for another 3 years.
I have trouble imagining such disparate countries as the BRICS members switching to an entirely new currency. To state the obvious, I’m no economist, but I was thinking maybe the new currency would be a silent one, used only for trade, like the Euro was at first used only for electronic transactions and accounting. Would that even be possible?
The Euro also involved a lot more countries, and thus more complications. But it established that there can be a process for such a thing, if the countries involved really want to do it.
The deutschmark invaded and the franc surrendered.
What about a crypto or gold-based one?
Crypto at this stage would be inviting total economic collapse or at least high volatility, which none of those countries are stupid enough to do that. And a stablecoin currency would need to be tied to another currency anyway.
The gold standard is a bit passé but workable, but it doesn’t solve the whole “brand new currency” issue.
Or, for that matter, any two of Russia, China or Brazil having that trust in the other one.
If there is a reserve currency, there’s going to have to be a central bank issuing it and setting interest rates for it, regulating its value. What will happen if some countries want the value to go up while some want it to go down? Given the example of the Euro in the Greek financial crisis, you might end up with a Russia trying to import arms working at cross purposes against a China trying to export consumer goods.
All of the countries involved would be giving up some level of control to the others in their bloc. I really can’t see that happening in a way that they would be able to keep a united front when different pressures start applying to different counties.
Of course. BRICS already has several financial structures in place to support that kind of use, like the New Development Bank and Contingent Reserve Agreement.