BRICs Moving Away from US Dollar Dependence

BRIC Business

The BRIC countries are looking for ways to protect themselves from the crisis presented by the weakening foundation of the US dollar, and one of those strategies may be to buy one another's bonds.

Brazil, Russia, India and China are considering buying each other’s bonds and trading currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s lead economic adviser said.

The leaders of the BRIC countries will discuss measures to promote regional currencies when they meet later today, Arkady Dvorkovich told reporters in the Ural Mountains city of Yekaterinburg before the first BRIC summit.

“There will be talk about increasing the share of mutual trade in national currencies, possibly placing part of reserves in the financial instruments of partner countries,” Dvorkovich said.

Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg as he seeks to lessen the world economy’s dependence on the U.S. dollar. Medvedev will hold talks later today with Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva.

Medvedev and Hu earlier today attended a summit of the Shanghai Cooperation Organization, which also includes the four former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.

Currency System

“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency,” Medvedev said. “Today this is the case and the currency is the dollar.”

The meetings “show a very strong desire of developing countries to play a bigger role in world finance, especially given the growing insecurity related to the current crisis,” said Masha Lipman, a political analyst at the Carnegie Center in Moscow, in an interview with Bloomberg Television today.

Russian Finance Minister Alexei Kudrin said on June 13 that the dollar’s “fundamental indicators” are “fine” and that he was confident in the currency’s strength. A week earlier, Medvedev said the dollar isn’t in “a spectacular position” and questioned its future as a global reserve currency.

Dvorkovich said the positions of Medvedev and Kudrin aren’t contradictory and that the Russian government is united on its dollar policy.

“In the long term, it is beneficial for all and all agree that the world needs a few strong currencies,” Dvorkovich said. “It cannot happen quickly.”

BRIC Business