monetary system

windbushlife

i,am new to your forum although not new to martins site, there appears to be very little discussion on main stream media about the impending impact the bric,s countries will have on the financial institutions when they break from the dollar, my question is, "as they represent 60% of the worlds population what impact will it have?
thats a really gentle question to start with. windbushlife

IronWolf

Do you mean stop using the USD as the reserve currency?

I think many of them already have, they use a basket of USD, Euro, Gold and other things.

I don't think anyone except China actually pegs to the dollar, and the USA would love for them to stop doing that.

bowlhead99

The concept of 'burgernomics' coined in the '80s is a lighthearted way of looking at how far the dollar stretches in different countries and helps you consider purchasing power parity. Recent Economist article on it here: http://www.economist.com/content/big-mac-index

One thing that it shows is that you can't necessarily lump together all the BRICs - by the Big Mac Index measure, Brazil is overvalued while Russia undervalued and China heavily undervalued.

While if you look at the IMF estimates for GDP growth: Russia, which is bracketed together as an emerging market under the BRICs acronym, is forecast lower growth over the next 5 years than either US or UK; Brazil is only marginally above the US, while China at 7% p.a. is in the world's growth hotspot (although this 7% is much lower than the 10%+ of recent years). India will is also much more likely to be at the China end of the scale than the Russian end.

So this is a group of quite disparate nations and it's hard to generalise about exactly where each of their currencies could or should move to in relation to each other or the pound or dollar. They represent a large percentage of the world's population but their spending power is much less than the 60% you mention, because they don't have a lot each.

For example, GDP per capita in China is $6-7k, or maybe $9-12k on a purchasing power parity basis, depending on whether you're getting your facts from the IMF, World Bank, CIA etc. Whatever the exchange rates do to equalise to a market rate (which might make for very differently priced Chinese exports, and unlikely to happen overnight), these figures are a lot lower than UK, US etc where $40-50k is seen.

It's undeniable that as China grows up, there is a wall of money ready to change the worlds pricing on everything from commodities to London house prices. But what do you think will be the "impending impact the bric,s countries will have on the financial institutions when they break from the dollar"?

It is a 'gentle question' but quite impossible to answer reliably. This is a discussion forum for savings and investments. Do you have a view yourself or are you just looking for help to write an article or an essay?