Why The BRICs Are Less Worried About The Next Crash

When even Jamie Dimon warns that "another crisis is coming", and points to the utter lack of market liquidity and the likelihood of another flash crash, it probably means that not only has he been reading this website, but that JPM's chief prop trading group, the Chief Investment Office, infamously long three years ago is already short and just waiting for the bottom to fall out of the market. One group, however, that is not be too worried about the next global financial crash - at least superficially - are the BRICs, because according to the Russian Prime Minister Dmitry Medvedev, "the creation of the BRICS reserve currencies pool worth $100 billion will allow member states to depend less on negative processes in the world economy and bypass market volatility."

"Along with the launch of the New Development Bank, it is one of the most important initiatives for countries entering into this association. The agreement establishing a pool of reserve currencies was signed last summer," said Medvedev at a government meeting Thursday.

"Each of the BRICS members may apply to any party to the treaty for loan,” Medvedev said, adding that key decisions will be taken by the Governing Council, which consists of either finance ministers or central bank governors. Russia will be represented by the head of the Central Bank of Russia Elvira Nabiullina.

"I hope [the agreement on establishing the pool] will not only strengthen our economic cooperation, but also provide the participants of the ‘five’ more independence from the current international financial situation and the problems existing in the international financial institutions," he said adding that it’s one of the most significant practical initiatives of BRICS.

Of course, stating that $100 billion (not USD denominated of course) in equity is a buffer against market or economic shocks in a world in which there is $600 trillion in notional derivatives, and which are one failed counterparty away from confirming (again, the first time being Lehman's bankruptcy) that net is indeed gross in a collateral chain that is only as strong as its weakest link, is supremely naive especially since the BRICs themselves are loaded to the gills with trillions in USD-denominated debt.

Unless, of course, what the Russian PM is suggesting is that the currency pool will provide the "fresh start" equity in a new, post-dollar world, in which any debt denominated in dollars is nullified once the crisis strikes. Of course, for that to happen, it would mean that the USD is no longer the world's reserve currency. Which is, of course, the unspoken message here (and one which would promptly explain China's ravenous gold buying in recent years).

On Wednesday the Government Commission on legislative activities approved the bill on the ratification of the agreement to establish the BRICS reserve currencies pool. The ratification of this agreement will help Russia advance its monetary cooperation strategy, particularly in the development of privileged relations with its partners from BRICS, said the Russian government.

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