Quite surprised so many countries peg their currencies:

 And I'm not sure about all the conclusions herein, but some of it is very interesting:

Dollarization: Do Stats Reveal a Threat from BRICS Economies?

The US dollar is losing its influence. Many countries are ready to embrace a multi-currency global future.

Zviad Khorguashvili

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November 13, 2024

In recent years, global politics have undergone considerable shifts. The COVID-19 pandemic, coupled with Russia’s war in Ukraine, has intensified the polarization of nations across the globe. Once seen by Western countries as a difficult yet possible partner, Russia’s standing drastically changed after Putin’s decision to invade a sovereign nation—first Georgia in 2008, then the annexation of Ukraine’s Crimea in 2014, and finally the full-scale invasion of Ukraine in 2022, which continues to this day. The last invasion marked the boldest attempt to alter European borders since World War II, cementing Russia, alongside China, as a principal and immediate geopolitical adversary to the West.

This growing polarization, worsened by mismanaged Western sanctions and delayed aid to Ukraine, has prolonged the conflict. Meanwhile, BRICS and potential members, many of whom are authoritarian regimes, have been strengthening alliances between each other. While Egypt and the UAE are US allies, most BRICS members see Western nations as adversaries.

What is going on global market:

Currently, the US dollar makes up 58 percent of global currency reserves and 54 percent of export invoicing. Together, the US and EU dominate over 80 percent of global reserves. Since the war in Ukraine, however, the renminbi has overtaken the dollar as Russia’s most traded currency, and Russia now holds renminbi and gold as its primary reserve assets. In the past two years, China and Russia have expanded currency swaps to boost trade, and Russia increasingly relies on CIPS (China’s Cross-Border Interbank System) after being cut off from SWIFT.

US dollar and Euro Share of Global Foreign Exchange Reserves, %. 2016-2024

(Source: International Monetary Fund)

Since the 1990s, China’s economic expansion has been nothing short of extraordinary. By 2001, it had overtaken Japan, which had long held the position of the second-largest economy. China’s growth didn’t stop there; in 2017, it surpassed the United States when measured by purchasing power parity (PPP), a significant milestone that underscored its rapid rise on the global stage. Although the US economy is still 54 percent larger when measured in nominal terms, evaluating economies through the lens of PPP also provides a good comparison of their size and standard of living for the population. This method adjusts for differences in price levels between countries, offering a more realistic perspective on what the two economies can produce and afford. Consequently, while the US maintains its nominal lead, China’s position in terms of PPP highlights its significant global influence and the shifting balance of economic power.  

China – new global power?  

GDP of China, United States, European Union, Russian Federation and Japan. PPP (Constant International $), billions. 1990-2023

(Source: World Bank)

It is true that nominal GDP reflects a country’s ability to buy goods internationally and we should also look at those GDP statistics. But it also shows that if the current trend continues, the US will lose the first place to China in the near future.

GDP of China, United States, European Union, Russian Federation and Japan (Current US$), billions. 1990-2023

Recent sanctions from The United States and western allies highlighted the vital role of gold as the most secure and stable asset a country can maintain in its reserves. When Western nations imposed sanctions on Russia, freezing assets like foreign currency reserves and restricting access to global financial systems, gold emerged as the one resource they couldn’t confiscate or block Russia from using. This emphasized gold’s unique position as a safeguard against sanctions and geopolitical uncertainty, offering protection in times of increased global tension.

As a result, many authoritarian regimes, particularly within BRICS nations, have been boosting their gold reserves as part of a broader effort to shield their economies from potential external threats. This trend reflects the growing understanding that, in an era where economic sanctions are frequently employed as geopolitical leverage, holding large gold reserves ensures a degree of economic independence. Consequently, these countries are focusing on gold as a way to reduce their reliance on the US dollar-based financial system and secure their financial resilience against future sanctions or global market upheavals.

Does the future lie in gold?

Gold Holdings. 2018=100
(Source: Atlantic Council, World Gold Council)

The shift toward gold and de-dollarization appears more plausible if we exclude countries that lack independent monetary policies and are interested in joining BRICS. Currently, only 35 percent of countries have an autonomous monetary policy. Most other nations have currencies that are either fully pegged to, or managed in relation to, major global currencies like the US dollar, euro, or Swiss franc. This indicates that many countries might be inclined to peg their currency to the renminbi, gold, or even adopt a new BRICS single currency if they aim to join BRICS and reduce their economic dependence on Western nations. Currency pegging though, has several advantages. It gives a country an exchange rate stability, that reduces currency fluctuation and is good for international trade and investment. Second, inflation is much lower, because developed countries and strong currency in general have much less inflation than developing countries who have independent monetary policy. The third benefit of the currency peg is investor confidence, because it excludes uncertainty factors in economy and business.  

Currency Regimes for BRICS members and countries that expressed interest or officially applied for joining the Alliance.  

(Source: International Monetary Fund. (2023). Annual Report on Exchange Arrangements and Exchange Restrictions)

BRICS and its potential size:

So, who are the countries who expressed their interest or officially applied to join BRICS? There are 43 countries from the Middle East, Asia, Africa and South America 

To see this chart properly click on the article heading (in blue) to go to the website

Countries that expressed interest or officially applied for joining into BRICS

#	Expressed Interest	Region	#	Officially Applied	Region
1	Angola	Africa	25	Algeria	Africa
2	Cameroon	Africa	26	Senegal	Africa
3	Central African Republic	Africa	27	Zimbabwe	Africa
4	Congo	Africa	28	Bolivia	Americas
5	DR Congo	Africa	29	Cuba	Americas
6	Ghana	Africa	30	Venezuela	Americas
7	Libya	Africa	31	Azerbaijan	Asia
8	Nigeria	Africa	32	Bahrain	Asia
9	South Sudan	Africa	33	Bangladesh	Asia
10	Sudan	Africa	34	Kazakhstan	Asia
11	Tunisia	Africa	35	Kuwait	Asia
12	Uganda	Africa	36	Malaysia	Asia
13	Colombia	Americas	37	Pakistan	Asia
14	El Salvador	Americas	38	Palestine	Asia
15	Nicaragua	Americas	39	Saudi Arabia	Asia
16	Peru	Americas	40	Turkey	Asia
17	Afghanistan	Asia	41	Thailand	Asia
18	Indonesia	Asia	42	Yemen	Asia
19	Iraq	Asia	43	Belarus	Europe
20	Laos	Asia
21	Myanmar	Asia
22	Sri Lanka	Asia
23	Syria	Asia
24	Vietnam	Asia

(Source: European Parliament. (2024). Briefing. Expansion of BRICS: A quest for greater global influence?) 

How large are the current and potential BRICS? If all the proposed nations were to join BRICS today, it would become the largest political and economic bloc globally. This expanded BRICS group would account for over 50 percent of global GDP based on purchasing power parity (PPP, International $) and represent roughly 71 percent of the world’s population.

GDP Current US dollars and GDP PPP Current International dollars, Trillion. BRICS, US & Allies (Canada, UK, EU, Japan, Korea Rep., Australia), Potential BRICS (Countries that expressed interest or officially applied for joining into BRICS). 2023.
(Source: World Bank. (2024). World Bank Data)

What kind of future does the world have?

Are advanced democratic nations losing their global influence? Could this decline be attributed to years of accommodating authoritarian regimes, coupled with domestic welfare and monetary policies that have stifled wealth creation? Are demographic challenges, such as falling birth rates, aging populations, and growing migration issues, further exacerbating this shift? Is the world, as a result, moving toward a new bipolar dynamic — not between capitalism and socialism, but democracies and authoritarian governments or their semi-democratic allies. One we know for sure, is that US dollar is losing its influence, and this is aligned with US global political power also. The data indicate that while the US dollar faces challenges, countries not typically aligned with Western allies are actively contributing not only to de-dollarization but also to expanding their influence in the global economic and political arena. Will a multipolar future emerge soon?  

(Map created by the author)

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Zviad Khorguashvili

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Fiscal stimulus on top of monetary for CHina?

 Note the point about "re-balancing" - this has been talked about for years:

Xi Jinping is channelling his inner Mario Draghi

Politburo gives China’s shares a boost

The world’s capitalists are feeling cheerful, says John Authers on Bloomberg. Why? Because the “politburo of the world’s largest communist state” is warming to the idea of more welfare spending. There are “enough ironies… to sink the Titanic”. Chinese stocks leapt 8.5% on Monday for their best day since 2008. Over five sessions the CSI 300 index has risen an astounding 24%. In Europe, luxury shares, which are highly exposed to Chinese consumption, also rallied strongly.

Whatever it takes

The excitement came after a statement by the politburo suggesting Beijing is open to using fiscal stimulus to “prod consumers to start buying stuff again”, something economists have been advising for years to little effect. Stronger social-support policies are also on the table. There are as yet “no numbers”, but the declaration of intent from political leaders has been enough to trigger a surge of confidence on stockmarkets.

“Gone is the equivocation on deleveraging, moral hazard and provincial indebtedness, a staple of previous politburo meetings,” says Marko Papic of BCA Research. “This is Beijing’s ‘Whatever It Takes’ moment,” he says, a reference to Mario Draghi’s famous declaration in 2012 during the euro crisis. Investors are dreaming of a repeat of China’s “massive” 2008 stimulus, which helped the country avoid the worst of the global downturn, says James Mackintosh in The Wall Street Journal. But that splurge also left the economy with many of its current problems, including local government debt, overcapacity and excess housing. 

China’s central bank had earlier unveiled a series of measures designed to tackle the housing slump, including easier monetary policy and cuts to mortgage rates for existing housing, says Anthony Anastasi for the South China Morning Post. But making credit cheaper doesn’t address the country’s fundamental “structural imbalance” – consumption is too low, while investment and savings are too high. High investment was a good strategy when China needed to build out its infrastructure and factories, but now all those factories are pumping out products that local households don’t have the cash to buy. What’s needed is a rebalancing towards consumption.

That is why the politburo’s hint of big fiscal stimulus to come has excited markets, says Reshma Kapadia in Barron’s. With the official 5% growth target “in jeopardy”, officials seem to have become “alarmed enough to shift out of slow gear”. For markets, the big question now is whether political statements are followed up with significant cash.

Some foreign investors are cautious, says the Financial Times. “We have seen these fits and starts where China puts in place some kind of stimulus and it has not resulted in a long-term constructive recovery,” says Saira Malik of asset manager Nuveen. “We’d be looking for more follow-through in terms of a pick-up in economic activity.” Others caution that a more immediate threat to the rally is coming into view: a possible Trump victory in the US presidential election and the prospect of a renewed US-China tariff war. 

Monetarists have been saying policy is too tight for a while - this backs it up:

 

The last great engine of the world economy is sputtering out

Both China and the eurozone are in a slump and no one looks ready to take the baton from the stalling US

Ambrose Evans-Pritchard22 August 2024 • 7:21pm

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The Jerome Powell-led Federal Reserve will have to pull off an immaculate soft landing to keep the world afloat Credit: Kevin Mohatt/REUTERS

Ajumbo US rate cut of 50 points in September is back on the table, and possibly several cuts in a quick succession as the Federal Reserve is forced into a screeching hand-brake turn.

Markets have been caught off guard by a drastic revision of non-farm payrolls, the worst miss since the Lehman crisis. Labour economists can justifiably say “I told you so”. They have been warning all year that instant headline figures do not catch early signs of trouble in the US jobs market when the economic cycle rolls over. You have to look under the bonnet.

“The Fed is late, and is now going to have to scramble, in an undignified manner,” said Paul Donovan, chief economist at UBS wealth management.

One has to sympathise with Fed chairman Jay Powell as he descends on Jackson Hole this Friday for the annual ritual of marshmallow roasting and campfire songs. The institution has been misled once again by unreliable data. The gain in non-farm payrolls in the twelve months to March was 818,000 less than previously stated. The enormous error flattered Bidenomics and overstated the US boom. We should assume that GDP growth will be revised down as well — unless productivity has magically surged, which I doubt.

Citigroup says the economy may already be well into recession. It has pencilled in double-decker cuts in both September and early November. 

The start of a US rate-cutting cycle is an intoxicating tonic for global equities, small caps, emerging markets and commodities, provided it comes with a soft landing. It is a different story if a slowdown flips into a hard landing. Portfolios are cut to ribbons once that is allowed to happen.

“We say sell the first cut as hard landing risks are clearly rising,” said Michael Hartnett, investment guru at Bank of America. The S&P 500 fell by an average of 6pc three months after the first cut in the seven hard landing episodes since 1970, and this time stock P/E ratios are stretched to the moon.

It is sobering that combined federal, state, and local deficits running above 8pc of GDP this year are still not enough stimulus to stop US unemployment ratcheting up to 4.3pc and triggering the recessionary Sahm rule. If that level of spending cannot buy you perma-boom, what can?

The August tremor on global markets was probably a false alarm but there is a non-trivial risk that it may have been picking up real stress in the US economy and the world’s dollarised financial system. The VIX volatility index hit an intraday high of 65 on Aug 5. 

This has only ever happened twice before: in October 2008 and in March 2020, when Covid shut the economy and briefly broke the US Treasury market.

“We think it would be a mistake for the Fed to conclude that the turmoil was a head-fake,” said Krishna Guha from Evercore ISI. “Happily we think the Fed leadership ‘get this’. Having seen a live demo of what an adverse macro-market plunge into a hard landing would look like, it will want to make extra-sure this does not materialise.”

Fed minutes published this week revealed that several members wanted a rate cut in July even before the trouble in early August. “Many participants noted that reducing policy restraint too late or too little could risk unduly weakening economic activity or employment [and] could transition to a more serious deterioration.” 

The first stage of a labour downturn is clearly underway. Job offers in cyclical sectors such as restaurants and construction are plummeting. The second stage of rising lay-offs has not begun but may not be far away. The worry is that it can happen suddenly once confidence snaps, setting off the self-feeding cascade of a classic recession. 

Steven Blitz from TS Lombard said the Fed is now paying the price for its (ridiculous) policy of data dependency. “When the bad data shows up, policy is already late. There is a reason sharp downward revisions occur just before or during recessions,” he said.

Central banking is like ice hockey. You have to skate to where the puck is going, not where it is, and the lag times of monetary policy can be a year or two.

We will find out soon whether or not the Powell Fed has committed a second error by staying too tight for too long, the mirror image of staying too loose as the money supply exploded and the economy roared back at the end of Covid.

No other part of the world looks ready to take the baton as the US slows. The eurozone is still in a deep manufacturing recession. It is tightening fiscal policy by 1pc of GDP this year as the Stability Pact comes back in force. But it is China that keeps sinking further into depression, unable or unwilling to stop the onset of post-bubble debt deflation. 

Used home prices in the 70-city index have dropped 14pc so far from peak to trough, falling almost every month since mid-2021 in slow torture, grinding away at the stored wealth of the Chinese middle class. Fear of further price falls is in turn leading to extreme precautionary saving and a mood of cosmic gloom. New home starts have fallen 63pc from their peak, a steeper and deeper property bust than Japan saw in the 1990s.

The authorities are dabbling with a resolution mechanism but the scale is not up to the problem. “The sums so far are still too small to make a meaningful difference,” said Capital Economics. 

Xi Jinping is too alarmed by rising debt to let rip with demand stimulus. The People’s Bank is too worried about the exchange rate and mismatches in the Chinese bond market to let rip with serious money. The result is a death spiral in the monetary aggregates. Janus Henderson investors says two of its key measures are now dangerously weak. “True M1” is contracting at a 4pc rate (six-month annualised) and the China corporate liquidity ratio has dropped to unprecedented levels.

Rather than grasping the nettle at this year’s Third Plenum, the Communist Party has opted to double down on its strategy, aiming to export its way out of trouble and dump its excess capacity on the rest of us. China’s slump is why iron ore prices have crashed. It is a large reason why Brent crude is hovering at two-year lows near $76, even though the OPEC-Russia cartel is withholding three million barrels a day to prop up prices. 

China rescued the world economy when the West came off the rails in 2008-2009. Fifteen years later it is more likely to compound a global recession.

Markets are betting that the Powell Fed will pull off an immaculate soft landing and keep the world afloat. Let us pray that they are right.