BRIC Summit Sees End of Dominance of U.S. Dollar

The BRIC has just held its first summit, and has emerged with a pointed gun aimed at the U.S. dollar.
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Goldman Sachs is such a pivotal player on the global financial scene, it is capable of creating a powerful new economic and geopolitical bloc without even intending to. In 2001, the investment bank created the term "BRIC," referring to Brazil, Russia, India and China as four of the most important developing economies on the globe, with the potential of becoming the dominant global economies by 2050, based on aggregate economic capacity and long-term growth potential. From the mind of Goldman Sachs this acronym has emerged as an actual economic and political bloc. Its reality was given substance when the BRICs held their first summit meeting in Russia this week.

The emergence of the BRIC as a formalized geopolitical entity may have profound long-term consequences for the global economy and political order. These four countries collectively amass twenty-five percent of the planet's land surface, contain approximately 40% of the world's population and have a combined GDP exceeding $15 trillion, a figure larger than that of the United States. Clearly, if the BRICs experience long-term economic growth at a faster pace than the U.S., Japan and the Eurozone, their formation of a geopolitical bloc is potentially a strategic game-changing occurrence in world politics.

At the conclusion their summit meeting, the communique issued by the BRIC heads of state and government pointed towards their perception of growing economic and political clout, and a desire to flex their collective muscles. Not surprisingly, the BRIC summit participants called for more influence in global platforms involving economic cooperation and financial governance. Most importantly, the BRIC leadership spoke forcibly on the role of the U.S. dollar as the de facto global reserve currency.

Russian President Dmitry Medvedev, who hosted the BRIC summit, had told journalists prior to the meeting that present policies which maintain the role of the U.S. dollar as the world's reserve currency " have not managed to perform their functions." Senior economic advisors from other BRIC nations, especially China, have also expressed the viewpoint that the status of the U.S. dollar as the only global reserve currency can no longer be unchallenged. It is therefore no surprise that the BRIC summit addressed the greenback in its official communique.

"We also believe there is a strong need for a stable, predictable and more diversified international monetary system," the BRIC leadership tersely stated. Reading between the lines, the BRICs largely blame the United States for the global financial and economic crisis and believe that the malfeasance of U.S. fiscal and regulatory policies has abrogated the previously unchallenged status of the U.S. dollar as the standard reserve currency.

The BRIC has just held its first summit, and has emerged with a pointed gun aimed at the U.S. dollar. Not that this newly formed geopolitical bloc will immediately seek to diminish the U.S. dollar, considering in the short-term they themselves would be negatively affected, China in particular, which holds nearly a trillion dollars of U.S. dollar denominated Treasury bills. However, the handwriting is on the wall. With a growing perception among key economic players across the globe that the U.S. budget deficits are raging out of control and will inevitably spark high levels of inflation, this new power bloc is already planning for the day after the supremacy of the once might American greenback has been terminated.

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