Today Warren Ingram invites Rupert Hare, Head of Multi-Asset at Prescient, to delve into the debated concept of a BRICS currency, geopolitical significance and challenges to G7 dominance, especially with India and China's rising influence. Discover the potential impacts such a currency could have on the global economic stage and the transformative power of emerging economies on global structures.
Questions/ Topics
Have a question for Warren? Don't forget to voice note your questions through our WhatsApp chat on (+27)79 807 8162 and you could be featured in one of our episodes. Follow us on Twitter, LinkedIn and subscribe to our YouTube channel for more Financial Freedom content: @HonestMoneyPod
Today Warren Ingram invites Rupert Hare, Head of Multi-Asset at Prescient, to delve into the debated concept of a BRICS currency, geopolitical significance and challenges to G7 dominance, especially with India and China's rising influence. Discover the potential impacts such a currency could have on the global economic stage and the transformative power of emerging economies on global structures.
Questions/ Topics
Have a question for Warren? Don't forget to voice note your questions through our WhatsApp chat on (+27)79 807 8162 and you could be featured in one of our episodes. Follow us on Twitter, LinkedIn and subscribe to our YouTube channel for more Financial Freedom content: @HonestMoneyPod
Brought to you by Pressient Investment Management. Informed by science, guided by insight. Pressient Investment Management is an authorized FSP.
Speaker 2:Welcome to another episode of Honest Money. Today is kind of a special episode and it's very specific. It's one topic and it's rare that we do these, but it's such a big topic of conversation. At the moment we're talking about bricks and especially around this brick's currency. That's been floated around in the media a lot and I'm no one central banker. I don't even really understand cash or bond markets and the like, so I was going to say the heavyweight group, but that's not meant to be a compliment. The heavyweight group here from Pressient Investment Management. He understands multi-assets, which means cash, bonds, property shares, gold, maybe crypto.
Speaker 3:No, no one understands crypto. No one understands crypto.
Speaker 2:So we need to talk about this because I think it's in the news, it's dominating. It might fade out of the news for now, but I think it's going to come back again. It's going to be something that goes. So maybe let's break this thing down into bite size chunks. So I understand. Firstly, we're talking about bricks, Kind of what is bricks?
Speaker 3:Yeah, so bricks is something that was coined, I think it was, in the 1990s by an economist from Goldman Sachs. It was then the four largest emerging market powers in the world. So Brazil, russia, india, china and then South Africa was added into the mix in the 2000s, I believe it was, and we got a seat at that table. What it is, it's hard to describe in the context that it's so geographically diverse. Think about the Eurozone. Right, the Eurozone is Europe. There are all neighbors, so free trade is quite easy to do amongst European countries, but for BRICS it's all around the world. So obviously we do a lot of our imports from China, but then that would pass on to Brazil, to India, to Russia, so it's a lot more difficult to implement some sort of a trade agreement with the BRICS economies. It's not to say that it's not a good thing. I think that alliances are awesome and I think it's great that South Africa has got alliances both with BRICS and with the generally western, or considered western, economies.
Speaker 2:So it's basically almost kind of a whole bunch of gentlemen's agreements. We're all shaking hands with each other. We'd like to be friends, we'd like to trade with each other, but there are no kind of concrete treaties to say free trade agreement between South Africa and China. It's an intention to do something.
Speaker 3:It is an intention and it's important to say it's not political ideology. So it's not like we are importing Chinese politics into South Africa or Russian politics or whatever it might be. We remain a sovereign state in our own right and we operate amongst the BRICS countries, which now, as of late, includes quite a few more countries. So I think a positive development of the recent BRICS summit in Johannesburg is the inclusion of more some of the countries, maybe not others, but for instance, for us the inclusion of the UAE and Saudi Arabia means we've now got oil producing countries from which we can potentially benefit from importing oil.
Speaker 2:So, not to put words in your mouth, this is my view, but I think a lot of people, when they kind of expanded it now to whatever it's going to be called, they said it's BRICS plus and they kind of, yeah, we've got Saudi Arabia in there, et cetera, et cetera. My view is that it's economically a much more powerful collective now than it was, and equally, that we have this G7, and that's really kind of the old waste, the old world, and there wasn't really a cohesive counterbalance. And if you look at places like the United Nations, all the kind of international trade bodies, still very America and Europe dominated, and so it is correct to say but hang on, when you behave badly, nothing happens. You don't even bother to answer the question. Now, all of a sudden, there's a collective that could be a balancing act. Whether we lack the human rights in Saudi or in China is not the point. It's rather to have a unit that starts to balance, and I feel like the world is always better nature is always better when we have balance.
Speaker 3:Yeah, I mean, there have always been the G7 and, in particular, the United States have always been the big ways at the table. But if you look at China and this is not any view on China per se, but if we just observe things from a completely neutral standpoint if we look at China and its growth through the years, their GDP is close on surpassing the United States. Their population is far underway bigger than the United States. Their land mass, I think, is roughly equal. Their army is not quite as big, as you know. I think it's very difficult to be as big as the United States, but it is certainly growing.
Speaker 3:So, in terms of geopolitics, what is there that makes them not potentially the biggest powerhouse of the world? And that's why I think it's important to focus a lot on China and other emerging economies, but China in particular, and keep an eye on what's emerging from that, because we're quite Western biased. In South Africa we speak English, a lot of people speak English here. Very few speak Mandarin right, and because of that reason, we focus in the United States and we think everything about the United States. What is the Fed doing? How many times do we think about China Central Bank?
Speaker 2:I can't even tell you the governors of the Chinese Central Bank Exactly, and that's important. And equally, I think, there is this other little economy creeping out the woodwork, now called India and it might be about to change its name, it seems like and the way that they're growing, both in population size, sure, but actually in the size of the economy per person, so that's GDP per capita, but overall just the size of the economy. It wouldn't surprise me to see India catching up to China and the US in the next few decades. They seem to be doing everything right.
Speaker 3:Yeah, I mean you've always had this differentiation between developed markets and emerging markets. China is in the emerging market index, but I'd say that China is almost becoming a developed market. They've gone through that production phase where they are highly dependent on manufacturing cheap labor output and they still have a lot of that in China but they are switching a lot more towards a consumer based economy. So who's taking up some of the slack in terms of manufacturing? India. So they're following in the footsteps of China. Very different political ideology, very different people, but in terms of the macroeconomics behind it, quite similar in the way that they're progressing.
Speaker 2:And for me, I feel, one of the things that you need as a country to go from being a middle income country to a high income country would be things like highly developed courts, sophisticated democracy, free press, et cetera. But a lot of that you can argue at the margin, but that's what India's really got. What they didn't have was the sophisticated infrastructure of goods, railway lines and ports and roads, and all of that is being built now, and so it's very likely that if they keep going on this path, that they become a middle to high income country. I'm not saying tomorrow, I mean, but something to watch. And now we circle back to Bricks, bricks Plus, whatever it's going to be.
Speaker 3:I actually did on that. I actually put in all the countries in a word solver to see and try to see. If there was a new acronym they could have some 14 character word that I came up with.
Speaker 2:It's going to sound like a world show. Exactly, it was exactly like that. So one of the things that's being bandied about is a Bricks currency, and for some people that's hugely exciting and for other people it's terrifying. Likely, it feels to me like a bit of a fiction.
Speaker 3:I think bandied about is exactly the right phrase to say there. I mean, it's not like we're going to go to the shops with Bricks in our hands, pay for a sandwich. I don't think that it's possible in the context that people are thinking. They're thinking the euro right, the euro is a centralized currency with one central bank. I don't think that's how it would work as a replacement for existing or then existing currencies. A common monetary union I don't think that's how it would unfold. What it would mean is more the way that the world does trade.
Speaker 3:So currencies are a really fickle thing. The majority of them trade through the dollar. So what most people don't realize is when they buy pounds, for example, or the Rem Nimbee, better example, they will sell rounds, buy dollars, sell dollars, buy Rem Nimbies. So that's how it generally processes, because the banking systems around the world are geared for that. So direct country to country trading is quite difficult. But that's what is being put on the table from the Bricks economies or countries as the potential to increase more direct trading between the different countries.
Speaker 2:So I buy something from China, I'm going to send my rands and they buy something, or else they're going to send us their renumby, etc. So, and then we're going to store those, they're going to store Rans.
Speaker 3:Verilize the problem right and with balance of trade that becomes a real problem and we think about us. We import the majority. I think the balance of trade with China is massively towards the imports. So if you're netting off imports and exports, then currency isn't really a problem. But if we are net importers of Chinese goods, we are buying, we paying in Rans, giving them the Rans and then they sit there with a whole bunch of Rans and they could move our currency. That would very much remove the currency. They would have the power to move a currency if they sat with all of those Rans. What could and would then happen is potentially they buy back into ASA, government issued debt, which is great for our government. But it's all part of the dynamics of foreign trade.
Speaker 2:And this is not an established way of doing business already. This is something that's going to be developed, or is it already?
Speaker 3:working. You can already do direct trading. I just think. I think it's not as mainstream. It's hard to track through the global banks. Most of the banking system goes through the dollar.
Speaker 2:So if you're watching and listening and you're freaking out because you think we're going to be subject to the Chinese central banker whatever his name or her name is and our futures dictated by them maybe in decades to come, but maybe in the next few years very unlikely and then the overall benefit or detriment to South Africa of being part of this, I mean we won't know, I guess, until time has passed, but me sitting here I'm thinking an expanded BRICS Plus in South Africa being part of that. It doesn't feel to me that it damages this in any way and it could help. I don't think we've seen a lot of benefit from BRICS so far as a country.
Speaker 3:Yeah. So I'd say it could potentially help us and it can also potentially hurt us. So we have to play this very, very these cards very closely. You recall when South Africa was sort of mildly biased let's say not towards Russia but not towards the Ukraine the United States really really didn't take that well and looked at cutting a lot of the agreements that had in place in trade in South Africa. There are a lot of existing agreements we've got for trade with Europe and with the United States, so it really really what we have to do is balance off the benefits of joining BRICS or in BRICS but joining more agreements with in BRICS and the potential impacts that could have with other agreements we already have.
Speaker 2:And I guess there are much bigger. Expanded union makes it harder to single out and punish one country, and that's important, because when it's four or five that does become an issue. But, as you say, we need to be genuinely non-aligned.
Speaker 3:Exactly. I don't know if that's actually a possible thing, but as much as we can, we need to be genuinely non-aligned.
Speaker 2:Okay, so please don't panic. Everything will be fine. There are lots of other things to worry about, but for today, don't worry about being a BRICS currency Rupertile. I appreciate you joining us. Thank you so much. Pression Investment Management, always willing to share and making it interesting for us.
Speaker 3:Pleasure, as always.
Speaker 2:And I look forward to having you on again.
Speaker 3:Thanks very much.
Speaker 1:Brought to you by Pression Investment Management. Enformed by science, guided by insight. Pression Investment Management is an authorized FSP.