BRIC Summit to Evaluate Dollar

On June 16th, Chinese President Hu Jintao, Russian President Medvedev, Indian Prime Minister Singh and Brazilian President Lula will hold the first so called “BRIC summit” in Yekaterinburg.

“BRIC” is a new word that has appeared recently, consisting of the first letters of Brazil, Russia, India and China. These four countries are important countries with big populations and territories. They are also the emerging countries in the modern era. The BRIC countries are in a historical period when their economies are growing rapidly or are reviving. Their total gross national product accounts for 25 percent of the gross world product. In 2008, BRIC contributed to a 50 percent increase in the world’s economic growth.

From the angle of civilization or a cultural revolution, BRIC does not strictly belong to the “Western Civilization Circle.” These countries are rising together, showing that human civilization tends to be more multi-cultural and colorful.

This first “BRIC summit” is held under the pretense of deep development in the international financial crisis. It’s well known that this financial crisis comes from the U.S. Because of the important status of the U.S. in the world economy and because the dollar has the status of being the international reserve currency, this financial crisis is quickly spreading around the world. The financial crisis also reflects prominent problems: the imbalance of current world economic development, the current economic order and the incompatibility between the financial system and the real situation.

This first BRIC summit reflects the emerging big countries’ strong desire and urgent need to cope with the international financial crisis together. Four countries will enhance teamwork, enhance coordination in micro policies, object protectionism and push forward international financial system reform. This year, multilateral coordination to cope with the financial crisis has been going on, such as the G-20 summit. The BRIC summit is also a part of the global efforts.

There are two major things to watch for at the BRIC summit. One thing to watch is how the participating leaders will evaluate the dollar. Since WWII, the dollar has been the international reserve currency. This has to do with the power and status of the U.S., and it was formed by history. At the beginning, the dollar was closely linked to the gold price without any problems in its reputation. But after that, the U.S. had different economic needs and let the dollar detach from gold. The basis for the dollar as the international reserve currency has fluctuated. Since the international financial crisis, the dollar’s reputation and effect has been seriously damaged.

The dollar’s status as the international reserve currency has been questioned. Therefore, by quoting a Russian official’s words, BRIC have a clear understanding on the issues, such as relying on a single currency. Officials from some countries suggest creating a super sovereign reserve currency by using IMF Special Drawing Rights as a basis. BRIC has already begun to increase IMF bonds to enhance the right of speech of emerging countries in the international financial system and to force the U.S. to be accountable for the dollar. As a matter of fact, in many countries’ bilateral and multilateral trade arrangements, the process of moving “away from dollarization” has begun. Of course, it will take a long time for the dollar’s status and function to be changed. Every country needs to act with caution and operate with care under the precondition of stabilizing the world’s economy.

The other thing to watch for is whether this BRIC summit will immobilize, institutionalize and become a mechanism in which all can take common action, or if it is just a forum. According to the current situation, this summit is still primarily a platform for dialogue and communication. However, it is merely one step away from consensus to mutual trust.

In recent world history, any big economic crisis means the restructuring of the world’s economic model and financial order. This is unavoidable and it is independent of humans’ subjective will. People can only act along with it. In the current international financial crisis, relatively speaking, the situation of BRIC is better as the status of the four countries is still on the rise. It’s said that emerging countries will be the first ones to walk out of the economic recession and they will lead the world’s economy to walk out of the recession. This saying is quite reasonable.