Implications of a new global reserve currency for BRICS counties

[Music] well analysts continue to speculate on the implications of an international reserve currency planned by russia and china amid fears that the u.s might be facing a recession now the announcement of a reserve currency was made by russian president vladimir putin during the brics summit in june meanwhile former u.s president donald trump warns of a depression if the u.s economy continues on the slow growth path associate professor of african politics at unisa professor evaresto benira as well as regin quasi who is the executive director and the head of research on macroeconomics money and banking at first source money join us for a discussion great to have both of you thanks so much for joining us thanks thanks for having us it's an absolute pleasure yeah reg let me begin with you i mean we speak about a reserve currency as if everybody knows what a reserve currency actually is so but perhaps let's let's start with the basics here what exactly is a reserve currency and why should societies bother with what actually happens in the space when when they have this kind of thing yeah a reserve currency is that dominant currency in which transactions economic transactions are mostly used in a region in a continent globally so in this case we have the u.s dollar as the preeminent reserve currency this does not necessarily mean the u.s dollar itself is the reserve currency the euro is to some extent and japanese yen but preeminently the u.s dollar is that currency which international economic transactions are conducted in so it becomes a vital coke in international economic governance hence such an important issue as currency reserves being now suggested by the brits okay so we we look at that and and and the dollar is the the dominant reserve currency i mean in a nutshell that's pretty much so what it is but we've got russia saying hang on a second this should not be the case we should look at our own reserve currency as as discussed at bricks is that in basics what what what the the russian president is suggesting absolutely that's exactly what the president is suggesting is because the u.s is abusing that dominance it has uh for its currency so we have what they call the exorbitant uh privilege that the us has uh for its currency being the one that's being used globally so the us is using that as a tool as a weapon to whip all those that do not comply with whatever it wants them to comply with and when we look at and we look at the state of of the us at the moment and we we talk about the the the us economy and and perhaps prof you want to come in and also weigh in on this um with having the us as a reserve currency and you know the threats and the talk of of a recession and then a depression and having the u.s currency as that reserve what what implications are there let's talk about that now liam and the viewers good morning and thanks rich for laying that foundation let me politicize a bit or put it in football terms as as it were a research currency otherwise steps of renting so there is usually a link between failed states and a currency you you tend to find states that are failed having no currency at all so this is why there is so much talk so much attention and so much honey about this reserve currency because there is a direct link between state sovereignty and a currency in this case the sovereignty of the global south underwritten by the brics countries secondly we are witnessing a new international financial order in the making whether we like it or not there is a new financial order that is being developed as an alternative to the dollar euro dominated international financial order mainly because of what registered which is the abuse of the current system by the united states and its allies thirdly allow me to observe that you cannot separate money from war the two are interlinked because the most profitable business in the world is a war there is no war in history that has met a loss this is why cicero said money is the soul of the world so if all wars are profitable then we can trace the rise of not only reserve currencies but currencies themselves to all when when the massachusetts bay colony printed the first banknotes in the united states way back in 1690 it was to fund its military operations again in 1914 when the world war when the first world war the so-called first world war ended that is when we saw the rise of the united states dollar is the global reserve currency cates of the meeting that occurred at the bretton wood institutions so we see a direct link between war and currencies so what are the implications for the united states if i now go back to your question firstly there is going to be inflation at home inflation is going to visit the united states of america secondly secondly the united states is now going to fight in many france because remember there is already a challenge that is coming from digital currencies such as blockchain technologies as an alternative to the us donor hegemony so now it is going to be fighting on two fronts thirdly the de-dollarization this process that is happening will expose the reality that the gold that is presumed to be in fort knox is not there and finally the u.s veto at the imf in the world bank will become obsolete all right so it's so interesting because i i want to to i think we need to take a little bit of a history lesson here as well to find out how in fact the us dollar became this reserve currency because i mean if we go back like you you say war it brings about these things but i mean if we go back to 1971 the world left the gold standard and that was basically where it was gold was that reserve currency and the u.s announced that they no longer going to be converting dollars to gold so the question is why was the gold standard abandoned and how did the u.s dollar become this almighty reserve currency who determined that and at the same time how do we determine that the u.s currency will no longer be the reserve currency because it has been for a long time but how do we stop that from happening yes apologies you go for it thank you very much just a bit of correction there what happened in 1971 was that the britain woods system got abolished the britainwood system was such that the dollar itself was paid to the to the gold and the rest of the currencies were therefore fixed or paid to the us u.s dollar and the u.s dollar began to be a currency of reserve as early as 1940s actually the british institutions when they were being formed around 1940s 1945 that's when the uk british pound lost its reserve currency status towards the u.s and therefore the u.s emerged as one such currency because of the economy was quite strong and it was sponsoring much of the development in the in the eu as we speak now so yes it image therefore as such a currency and 1971 the demand for gold by france from the u.s became clear that the fort knox as uh as my colleagues would say had no gold at all that be given to each currency each country that would demand it therefore the president president nixon abandoned the the gold standard backing and all currencies became fear yeah now one for therefore given the dominance therefore this dollar status and countries are emerging started around 2009 when uh president dimitri medvedev of the the russian federation suggested that since the crisis of 2007-2008 the u.s was becoming the very unreliable person in global affairs therefore this need for us to begin to explore ways in which you could have a new financial order it began then yeah and then today brics is moving pretty fast to ensure that it has a reserve currency which is dependable which is not subject to the queens of one country and therefore here the brics are coming up with this new system okay so so let's let's kind of dumb it down again even more i want to know who actually decides on something like this because so you've got the u.s this is the reserve currency i mean when we see it i mean um prof you spoke about a failed state and you know the the dollar automatically comes in i mean we look at something like uh like our neighboring country zimbabwe i mean this is what happens this comes in but but who makes the decision that the dollar won't be that currency anymore because there are so many complexities in geopolitics i mean at the moment when we look at at war with the europe and the ukraine i mean all of these things that are going on there in russia we now see this visit that's taking place um that uh we we see uh nancy pelosi from us moving and going and visiting taiwan and they're massive tensions now between the us and china so there's definitely a big global shift taking place so who decides what this new currency is going to be what the implications are for a new global reserve currency and can we rely on an economy like russia for instance because russia with all of these sanctions against it yes of course they are holding up very well but when we look into the future are they still going to hold up very well let's perhaps look at that uh prof do you want to talk politics currencies and who determines what that next reserve currency is in simple terms lien who determines what then becomes the global reserve currency is the strongest among us so again we are back to the issue of war in the military and if we may link it to africa they are very strong arguments that the main reason why the kennel brother leader muammar qaddafi was assassinated was because he was championing the use of the gold standard or the gold coin is a central currency for african countries but that is a debate for another day you asked a very important question who determines and how do they determine it i think there is something that is called leadership when leaders decide to abandon one paradigm and shift it to another it then causes seismic shifts for now we see that china india iran and turkey among themselves they are already trading in their currencies what does this mean that they are sidelining the united states dollar just these four countries it means that at present the global market is excluding 3 billion people from the us dollar dominated international system over 3 billion people no longer need to use the united states dollar to trade with one another this is just a fraction of the global south i'm just talking about four economies here so as more countries continue to move away from the petrodollar system from the us euro dominancy which um which uses the u.s dollars the payment for oil we expect massive inflationary pressures to strike the united states economy but the most important thing lien is that the united states is not going to take this lying down of course the united kingdom duty to when the pound standing was used by the united states donor but i don't think that the united states will simply sit and watch and see the united states dollar being rendered a worthless currency like the zimbabwean dollar so we are most likely going to see a fight back now going back to the theme of war ukraine is receiving aid from all over the west right now at the last check i think they received 60 billion how are they going to pay back that money this is where the issue of resources comes in remember how the united states became rich after the war it is because all the european countries now had to pay back the money that the united states had used to finance the war and this is how the united states became a very strong economy there are innuendos that the maneuvers that are happening in taiwan are to provoke china into a type of russian reaction so that the united states can gauge how far china is willing to go remember we have never seen an angry china china is always calm and collected and it is not flexed its muscle so to speak so we are in really for a for a long ride to put it that way we really are and it and it is just getting it's getting more and more interesting but more and more scary at the same time rich i'm going to leave the final note with you because we are going into news now what does it mean for south africa because that the long and short of it that's what we really want to know here i mean we've already seen the repercussions of what happens in in a war like russia and ukraine and what it does for us and also you know we look at our membership in brics so we're very close to russia we're close to china but we also have good standing with the u.s and at the same time we're hearing former president trump warning of a depression in the u.s economy and we know that if the u.s catches a cold the whole world sneezes and you know i mean we look at something like the 1929 great depression and and the recent recession in 2008 um should we be worried should we as south africa and the rest of the economies of the world be worried absolutely not in fact it's quite an advantage for south africa to be aligned to the brits given the dynamics that we see for south africa as a country you must remember that the framework that we use the macroeconomic framework that we use which is quite atrocious it's neoliberal and primitive is a consequence of the u.s exercising quite largely its cohesive economic statecraft and hence where we're getting poorer and poorer as a consequence of the regime that we put in place which itself is because of the influence and the fear south africa we have has in combating it because it says well look we're dependent on the us on this and that and after all the u.s can actually unplug south africa from the system what happens the entire economy collapses south africa was afraid and i think this is an interesting development that we should all be very happy that we can now begin to be autonomous as we should so there are lots of advantages of south africa to be part of this development and should all go in the future for the rest of us believe it there gentlemen what a fascinating discussion um executive director head of research on macroeconomics money and banking at first source money regin quasi an associate professor of african politics in the department of unisa professor evaristo beniera discussing the implications of a russia and china to create their own international reserve currency

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Length: 16min 36sec (996 seconds)

Published: Wed Aug 03 2022