How will this be any worse on BRICS Clear than it currently is on Swift ?
Lets say you’re Egypt selling cotton to Russia. BRICS Clear is pushing local currencies. So Russia wants to pay for the Egyptian cotton in Russian Rubles. Lets say the amount of Rubles would buy 10,000 barrels of crude oil at the time of settlement. Russia is currently in economic dire straights and the currency value is dropping. When Egypt wants to spend its Rubles, if it can find a country willing to take them, it could only buy 5,000 barrels of crude oil.
How eager will Egypt be to settle another transaction in BRICS Clear when the value can evaporate. This is way international trade wants to settle in stable currencies.
Right, but there ways to mitigate that, without relying on the dollar and although they are not insignificant, they’ve surely considered them - the political benefits are huge for them.
there ways to mitigate that, without relying on the dollar and although they are not insignificant,
Sure, you can rely on other stable currencies like Euros or GBP. Alternatively you can rely on gold, but if you have the ability to trade your own currency to someone willing to accept it and give you sufficient gold, and that you can produce that gold on demand to buyers, you don’t really need a fiat currency except to facilitate transactions easier. The problem is these countries aren’t backing their currency with gold (or other precious metals).
The tradeoff to gold backing is that you can’t grow your economy either. The amount of currency in circulation will always be limited by the ratio of gold you’re backing your currency with. This is why the USA abandoned the gold standard, and it was the right decisions. Before doing this, if you wanted to borrow money, you had to FIND someone with money that would be willing to lend it. There were instances of limits in growth simply because all the folks that held the vast majority of the wealth (and thereby gold backed currency) weren’t lending it, so loans couldn’t occur in volume.
Lets say you’re Egypt selling cotton to Russia. BRICS Clear is pushing local currencies. So Russia wants to pay for the Egyptian cotton in Russian Rubles. Lets say the amount of Rubles would buy 10,000 barrels of crude oil at the time of settlement. Russia is currently in economic dire straights and the currency value is dropping. When Egypt wants to spend its Rubles, if it can find a country willing to take them, it could only buy 5,000 barrels of crude oil.
How eager will Egypt be to settle another transaction in BRICS Clear when the value can evaporate. This is way international trade wants to settle in stable currencies.
Right, but there ways to mitigate that, without relying on the dollar and although they are not insignificant, they’ve surely considered them - the political benefits are huge for them.
Sure, you can rely on other stable currencies like Euros or GBP. Alternatively you can rely on gold, but if you have the ability to trade your own currency to someone willing to accept it and give you sufficient gold, and that you can produce that gold on demand to buyers, you don’t really need a fiat currency except to facilitate transactions easier. The problem is these countries aren’t backing their currency with gold (or other precious metals).
The tradeoff to gold backing is that you can’t grow your economy either. The amount of currency in circulation will always be limited by the ratio of gold you’re backing your currency with. This is why the USA abandoned the gold standard, and it was the right decisions. Before doing this, if you wanted to borrow money, you had to FIND someone with money that would be willing to lend it. There were instances of limits in growth simply because all the folks that held the vast majority of the wealth (and thereby gold backed currency) weren’t lending it, so loans couldn’t occur in volume.
Awesome info thank you