Short-term, markets have been jittery before Russian President Vladimir Putin’s Victory Day speech, although there was little novelty in his blaming the West for Russia’s war in Ukraine. The Brazilian real and South African rand are also particularly affected by their China dependency, and renminbi weakness is clearly contagious for these currencies. From a medium-term perspective, as has been noted by Foreign Policy and other political commentators, Russia has started to rely on the BRICS to extend the use of national currencies in trade and integrate their payment systems. Russia’s inability to draw on its dollar reserves for international payments following the West’s sanctions is greatly accelerating this trend, especially as there is scope for China’s Cross-Border Interbank Payment System to be sped up for transactions in renminbi. In this greater medium-term context, markets are starting to think through the financial implications of a world slowly drifting towards a bifurcation between a Western sphere of influence, based on the values of free liberal markets and a BRICS sphere of influence, based on highly regulated and politicized economic systems. With BRICS accounting for 41% of the world’s population and 31% of economic production, and 18% of global military expenditure in 2021, markets are slowly pricing in the BRICS as a sphere of influence and the Ukraine crisis is proving a test of its geopolitical relevance. While Western media have highlighted the emerging unity of the U.S. and EU in the face of Russia, they perhaps underplay a similar process around Russia.
EM Thematic May 09, 2022 / 11:01 am UTC
BRICS Currencies Under Pressure As Sphere of Influence Trade Kicks In
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