BRICS+: It's not about Bitcoin, it's about US debt
"Do I think it’s possible that China’s Xi trusts Russia’s Putin who trusts Brazil’s da Silva, and so on and that they can work together and trust each other enough to establish a gold-backed BRICS currency that eventually includes half of the G20 economic giants?
Possible, yes
Probable? Still a heavy no
— James Lavish
Welcome to the latest issue of the Bitcoin For Families newsletter. This issue covers the expansion of the BRICS economic bloc and the implications for Bitcoin.
Slightly over a week ago, the BRICS economic block, composed of Brazil, Russia, India, China and South Africa, formally accepted six new countries into their organization: Argentina, Egypt, Iran, Ethiopia, Saudi Arabia, and United Arab Emirates.
The mainstream media barely covered the news because it's not good news for the Western world.
But no, the expanded BRICS+ will not bring Bitcoin to the world.
I was wrong. BRICS+ won't bring hyperbitcoinization
The BRICS countries have been very vocal about their desire to stop using US dollars for international trade among themselves and logically Bitcoin is the best choice for them to replace the US dollar.
But these countries are not ruled by logical people. They are ruled by politicians.
And no politician wants to give up the power of their own fiat currency. Not even Argentina, after going through multiple episodes of hyperinflation, will give up the power of printing money at will.
Brazil's president endorsed the creation of a common currency at the beginning of the summit that formalized the expansion but has also endorsed the idea of trading in their respective currencies.
Russia's Putin wants to use their respective local currencies.
India is skeptical of the practicality of not using the US dollar given that all the financial infrastructure that exists today is built with the US dollar in mind but they support using the rupee for trade among BRICS countries.
China is also vocal about reforming the financial systems to move away from the US dollar with the stated goal of using the yuan as the new global currency. Never mind the lack of liquidity of a currency that you're not allowed to freely trade.
And finally, South Africa, also supports using their respective local currencies.
So what's going to happen?
They won't create their own currency. They don't trust each other that much.
They will increase their trade using their respective currencies. This will be a fundamental tenet of the BRICS+ block.
It's the oil
The current five BRICS countries represent 26% of the global GDP and the addition of six new countries only expands that number to 29%. So why did they go through the trouble of more than doubling the size of the block in terms of countries? And why did they leave unanswered requests from other 20 countries to join?
Oil, gas and minerals.
The expanded BRICS+ block controls 43% of the global crude oil production and China and India, two of the original BRICS countries happen to be the 1st and 3rd biggest crude oil importers respectively.
Now, China and India will be able to buy the majority of their oil using their local currencies instead of US dollars.
Saudi Arabia and the United Arab Emirates will sell their oil in a currency other than the US dollar. The petrodollar is no more.
What will Saudi Arabia do with the yuans it receives from selling oil to China? They will use them to trade with China or with other BRICS+ countries. That is the REAL reason why the BRICS has doubled the number of countries. The BRICS+ is creating a circular economy of local currencies.
No more US debt for me, thanks
That is in a nutshell what all members of the BRICS+ block want. They want to stop buying US debt. They don't want to continue paying the bill for the US lifestyle and US government excesses.
Because every time the US economy hits a new rock, the US government solution is to devaluate the existing debt holders, either by printing more money or by increasing rates dramatically. And one way or another, their existing debt assets end up being worth much less.
The BRICS+ countries will little by little expand the intra-block trade in local currencies and the international demand for US debt will go down dramatically now that the petrodollar is no more.
This will be the real impact. The foreign demand for US debt will plummet, forcing the US Treasury to maintain interest rates high to attract demand from other sectors.
Notable notes
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