At this year’s Graduate School of Banking at LSU, I taught the course Interpreting Economic Change with Tom Payne, from the University of Tennessee-Martin. One of our students asked, “What are the BRICS nations, and how important are they in the world economy?”
BRICS is an acronym for Brazil, Russia, India, China and now, South Africa. These nations account for 25% of the global landmass and 40% of the world population. The combined economies are $8.7 trillion and they have accounted for 50% of global economic growth since the year 2000, and nearly 45% of the world economic growth since the financial crisis.
World trade of the BRICS nations has more than doubled since 1997 from 6.9% to 14.2%. Trade is developing three times faster in developing economies and countries, compared to the advanced economies. The U.S. used to be the largest trading partner with the BRICS nations, but now is challenged by the partners of the BRICS nations. China has overtaken the U.S. as Brazil and South Africa’s largest trading partner. The BRICS economies hold over 40% of world currency reserves in U.S. dollars.
Here comes the challenge. Several factors – including downgrade of the U.S. credit rating, possible default on debt and more quantitative easing – could threaten the role of U.S. currency worldwide and erode the value of the dollar. This would result in significant exposure to the BRICS holding dollar reserves losing value, which could lead to the possibility of a new common currency for the BRICS. This could be done by selecting one of the BRICS nations’ currencies, such as the yuan, or establishing a new currency similar to the euro.
If you do not think this could happen, and could have a big impact on agriculture trade, think again, as these countries flex their economic muscle against the struggling dollar, euro and yen.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]