Posted on June 14, 2009 - by Venik
Summit meeting of Brazil, Russia, India and China watched for signals on the dollar …
MOSCOW
– When the leaders of Brazil, Russia, India and China gather for their first full-fledged summit, they will be closely watched for signs of policy shifts that could affect the global role and strength of the U.S. dollar.
During the summit Tuesday in the Ural Mountains city of Yekaterinburg, Russian President Dmitry Medvedev is likely to reprise Russia’s call for a new global reserve currency to augment the dollar.
The Russian proposal reflects both the Kremlin’s push for greater international clout and a concern shared by other so-called BRIC members that soaring U.S. budget deficits could spur inflation and weaken the dollar.
Russia, China and Brazil recently announced their intention to invest in International Monetary Fund bonds to diversify their dollar-heavy currency reserves. IMF bonds are denominated in Special Drawing Rights, of SDRs, an artificial currency used by the IMF.
While this has raised fears that the greenback could be further weakened, analysts say BRIC nations can offer no viable alternative to the dollar.
"This should be a currency with some liquidity to it. SDRs won’t work in this respect," said Nataliya Orlova, chief economist at Moscow-based Alfa Bank. "The United States is the IMF’s chief investor, so one can hardly think that you can invest in the IMF and get rid of the dollar altogether."
Some say the main aim behind the reserve currency talk is to send a signal to the U.S. administration to step aside from its policy of printing money.
"They want to show the United States that there are forces that can influence U.S. policy," said Alexander Konovalov, head of the Moscow-based Institute of Strategic Assessment.
The foreign ministers of the four countries met last year in Yekaterinburg, and the presidents have met on the sidelines of other meetings, but Tuesday’s summit will be their first.
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