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Roodt’s crystal ball – BRICS and Ukraine

By Sue Segar, Associate Editor

ECONOMIST Dawie Roodt has voiced alarm about the inclusion of three countries out of the six which were invited to join BRICS at the recent three-day BRICS summit.

These are Argentina, Ethiopia and Iran, Roodt said, during an address to the business networking group, Exporters Western Cape.

Speaking to members of the Cape Town Press Club on the day of the wrap up of BRICS, Roodt lauded the inclusion of Saudi Arabia, Egypt and the United Arab Emirates in the BRICS bloc.

“It makes sense for Egypt to be part of BRICS because it is one of the biggest economies in Africa. Egypt is a major economy, one of the biggest in Africa, and more or less on a par with the South African economy, so it makes sense.”

For similar reasons, he added, the inclusion of the UAE was also a good move.

“The country that makes the most sense to me is Saudi Arabia. It is a very wealthy country which is trying to establish itself as a regional power in the Middle East. With their vast wealth, they will, hopefully, contribute a lot to the new BRICS Bank.”

Turning to the countries which were a cause of concern, Roodt said, “I don’t know why they included Argentina. The country is in economic trouble; there seems to be a new president coming who will adopt the US dollar as legal tender, but that economy has been in trouble for a long time.”

Similarly, he said, he could not understand the rationale for the inclusion of Ethiopia.

On the inclusion of Iran, Roodt said: “I can understand why they included it, as it is a major regional power, but if you invite a country like Iran to be part of BRICS, you are looking for trouble with America, so I don’t understand that.”

On whether the BRICS countries will establish a BRICS currency, as was discussed during the summit, Roodt said there is already a payments system between the various BRICS counties, meaning it is possible to convert the involved currencies. “It is possible to do that … but it is not that easy. He said he believes the BRICS countries will try to establish an easier and cheaper way of converting the currencies of the various countries in the BRICS group. “So in future we will probably start using our own currencies more.”

“But when you but talk about the reserve currency, it really depends on what you mean. The most important reserve currency in the world Is the US dollar. If you ask the Chinese, they would suggest we do get a BRICS reserve currency but what they actually mean is they want their Chinese currency to become the BRICS’ reserve currency.

“Of course if you do that, you replace the US dollar with another reserve currency, which is the Chinese one but it doesn’t make sense for a number of reasons, including that the Chinese do not have a very liquid and a big capital market behind that. You need a big, liquid capital market behind your currency before you can establish it as dominant reserve currency in the world, without any capital regulations. The Chinese don’t have that capital market and they have a lot of capital controls in their country.

“The only currency that could potentially rival the US one is the EURO and even the EURO can’t do that, as it doesn’t have a unified capital market behind it.

“So the Chinese renminbi is very far away from becoming the potential reserve currency in the world.”

Roodt said another possibility is the establishment of a BRICS central bank and the issuing of a new BRICS currency, e.g. a BRICS dollar.

“There you have a similar problem – because you don’t have a capital market behind it and not only that, before you can establish a BRICS currency, you have to synchronise the various countries, and link their various currencies and you have to set monetary policy that fits all current countries and at the moment, the Chinese economy wants lower interest rates while in SA we have relatively high interest rates, so it is going to be extremely difficult to synchronise all those various countries and to establish a new currency. It took the Europeans about 50 or 60 years before they could establish the Euro.

“So, talking about the new reserve currency … it is just not going to happen, but a more established and more efficient payment system between the various countries in BRICS is certainly a possibility and I think it is going to happen.”

Turning to the global political situation and its repercussions for the wider global economy, Roodt said the war in Ukraine, which is the major political issue in the world at the moment, will probably go on “for a very long time”.

“There is also the strong possibility that the conflict will escalate to something much bigger … with (Russian President, Vladimir) Putin and the generals saying recently they are prepared to make use of nuclear weapons.”

Turning to China, Roodt said Chinese president Xi Jinping, has a wish for his legacy to be that he united China. “This means that he wants Taiwan to be incorporated into China which could also lead to conflict with America and other countries like South Korea and Japan.”

On growth rates, Roodt said the Chinese economy is still growing, but “at a much slower rate.

“There was a time when the Chinese economy was growing at 12 percent but Chinese economic growth is going much slower now, probably in the region of about 3 or 4 percent. Contracting populations growths, in both China and Russia, will weigh on economic growth.

“The reasons for that is that they have a major debt issue and a property bubble in China – and also in China, for the first time since 1960, the Russian population will also contract. Which is interesting as usually what happens is a country becomes wealthy … then once they become wealthy; they start getting older, and then only will the population start contracting. What happened in Russia and in China is their populations started contracting before they actually became wealthy. Which is unusual.

Expect population growth to keep contracting in China which will weigh on economic growth; but also expect the possible conflict between the Chinese and the USA around what is happening in Taiwan.

When it comes to India, Roodt said, the economy is “cooking”. “India’s will be the major global economic growth power; the engine of economic growth going forward for the next few decades.”

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