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Ron Insana warns against getting caught up in the latest version of the BRICs

The Brazilian Financial Center in the financial district of Sao Paulo, Brazil, on March 22, 2023.

Victor Moriyama | Bloomberg | Getty Images

The emergence of a new economic bloc called “the BRICs” has been the subject of wide media coverage.

Originally an investment acronym created by a Goldman Sachs investment strategist to describe opportunities in Brazil, Russia, India and China, the group is now trying to become a true economic partnership largely aimed at weakening economic influence of the United States and the dominance of the dollar in the world.

In 2024, the BRICs will add Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates to their cohort.

To paraphrase a phrase from the movie “Jaws”, “They’re going to need a bigger moat” if they want to cut themselves off from American influence.

Charles Schwab’s chief investment strategist, Liz Ann Sonders, says the larger group will represent around 46% of the world’s population and 29% of global GDP. His colleague, Jeff Kleintop, who is Schwab’s chief global investment strategist, says the group’s population and GDP size are “impressive but meaningless”.

At the heart of their seemingly public disagreement may well illustrate why the BRICS may appear solid when in reality it is just a facade.

Among the 2024 members, some have a large population and others have savings of several billion dollars.

But they are wildly divergent in terms of military impact, import, and capabilities, not to mention wildly incompatible economic and military philosophies.

The creation of a basket of BRIC currencies, possibly backed by gold or a basket of commodities, which could challenge the dollar on the global trade front has raised some concerns.

I do not lose sleep in front of a basket of currencies when, among them, none would be interesting to hold independently.

The Russian ruble worth less than a penny.

The Chinese yuan is historically quite low and non-convertible.

I’m not sure I’m really interested in signing the Brazilian. Realthe Iranian rial, the Ethiopian birr or the Argentine peso.

I can’t imagine the developed world rushing to do more business with this group than it already does. Everyone is in love with the acronym; few are those who are in love with the members who make up the group.

In monetary terms alone, studies from the US Federal Reserve, International Monetary Fund and Bank for International Settlements show the following as of 2022, as Reuters reports:

“The dollar accounted for 88% of all foreign exchange transactions in April last year. The Fed estimates that between 1999 and 2019, the dollar accounted for 96% of commercial invoices in the Americas, 74% in the Asia-Pacific region. and 79% in the rest of the world.

“Banks used the greenback for around 60% of all international deposits and loans.

“Proponents of regime change (“de-dollarization”) point to the steady decline in the dollar’s ​​share of central bank foreign exchange reserves. in 1999.”

BRICS: How an acronym for Goldman Sachs turned into a strategic economic bloc

But, despite this singular decline, there is simply no other currency, or basket of currencies, that comes close to dollar dominance.

The group itself is made up of more than one country that has managed to become an international pariah. Among them are Russia and Iran, while Argentina is a tough economic case whose currency, like that of Russia, makes the currency basket suspect from the start.

As things stand, the Western world is moving away from China, isolating Russia, avoiding Argentina and reducing its dependence on Middle Eastern countries, including Saudi Arabia and the Emirates. Arab States with regard to their most important exports: oil and gas.

Indeed, this year, US oil production exceeded a record 12.8 million barrels per day and is on track to reach 13 million bpd in 2024, while remaining the world’s largest gas producer. natural, a title held by the United States. since 2017.

The western world, especially the United States, is rapidly rebuilding its manufacturing base, (finally) investing in infrastructure, and spending heavily on a massive energy transition to greener, cleaner fuels.

The BRIC coalition, as it stands, reminds me of the global equivalent of failing, failing, or dying companies merging into a colossal entity whose weight and size would make the company more competitive.

I have never seen this work, ever. They just get bigger and meaner.

The attempt to market the original BRICs as a global investment game, first proposed by Jim O’Neill of Goldman Sachs in 2001, was, in my humble opinion, a dismal failure, even though Brazil Bovespa performed considerably better than most.

Since then, US markets have outperformed much of developed and developing countries, despite the bursting of the dot-com bubble, 9/11, major corporate scandals, the Great Financial Crisis and a global pandemic.

The US economy remains the largest in the world and is now growing faster and with lower inflation than any member of the G-7 industrialized nations. I would keep my money at home.

This is where the heart is and where the hard currencies are also.

There are

— CNBC contributor Ron Insana is co-CEO of Contrast Capital Partners.


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