Lost in the hype over nations clamoring to join the BRICS block is a question I have not seen anyone address.

Let’s call the BRIC-based currency a “Brick” . And let’s define “success” as a significant percentage of global trade.

I discuss an alternate definition of “success” below, but let’s start with “success” as a percentage of global trade.
 

What Would it Take for the “Brick” to Succeed?

1. The Brick would need to float freely. The yuan doesn’t.
2. The Brick have to be a genuine reserve currency to achieve widespread use.
3. A functioning Brick-based bond market. This requirement is also for widespread use.
4. A significant desire by individuals to trade in Bricks and accept Bricks rather than local currencies or the dollar.
5. Trust

I purposely did not define “significant” because it comes more into play in my alternate measure of success.
 

Trade is Between Individuals, Not Nations

Fundamentally, trade is not between nations.

Aggregate reporting of trade deficits such as the persistent US deficit with China, makes it appear otherwise. But the deficit is really a result of a sum of individual transactions.

For example, you or I go to a store and buy a tool at Home Depot. More likely than not, it’s made in China. A Toyota may be assembled in the US or Mexico with parts from Japan, China, or Mexico.

Taking a step back, the intermediate buyer, say Home Depot, makes big orders with various Chinese manufacturers.

The same applies to a Brazilian Store Owner (BSO) dealing with China.

To place its order with a Chinese merchant, the BSO would need to convert Brazilian currency to Bricks, place an order with a Chinese Manufacture willing to accept Bricks, then the Bank of China would swap Yuan for the Bricks and then what?

What precisely does the Bank of China do with all the Bricks it is accumulating given that Bricks are a trading currency, not a reserve currency?

Are there any Brick bonds? No, because the Brick only a trading currency.
 

Aramco Example

Consider Saudi Arabia’s oil producer Aramco. What does Aramco do with the Bricks it receives for oil? Why do the Chinese buyers of oil have Bricks in the first place?

Will Aramco even take Bricks? If so why?
 

China’s Trade Balance Select Countries 2022

I pieced the above image together from the VusualCapitalist article Visualizing All of China’s Trade Partners

Assume for a second that every company in Saudi Arabia agrees to trade in the Brick. The Saudi companies receive $40 billion worth of Bricks for oil.

How do Saudi companies use those Bricks?

We need to make another assumption: Assume Aramco etc., swaps the Bricks for dollars with the Saudi government. What does the Saudi government do with them?
 

Global Trade $32 Trillion in 2022

Global trade was a Record $32 Trillion in 2022. If you add up all of China’s trade with India, Brazil, Russia, and Saudi Arabia in the above image, you get $612.3 billion. We also need to add in Brazil’s trade with India, and Russia’s trade with Saudi Arabia, etc. But how much is that?

There is no Brick-based bond market and thus no way to collect interest holding Bricks. There is an increasing lack of trust in dollars, but no reason to have any faith at all in the Brick.

And remember my preposterous assumption that all this BRIC-related trade is in the Brick. It surely won’t be. For all the hype about how big the BRICS⁺⁺⁺⁺⁺ block is from a GDP standpoint, how much total trade would they do among themselves even if every trade was in the Brick? Would it even be $1 trillion out of $32 trillion? If so, that’s roughly 3 percent.

Is 3 three percent significant? 10?
 

Gold Backed BRIC Currency Silliness on Dethroning the Dollar

I frequently hear talk of a Gold Backed BRIC Currency, but there are never any details for obvious reasons.

If Russia or China had a gold-backed BRIC, what would that even mean? Would you trust it? Buy it?

Assuming the Brick is gold-backed, it would needs to be convertible to gold on demand for there to be any trust.

Also see my previous post BRICS+ Is Forecast to Dominate the World’s GDP, But What Does That Mean?
 

What About Sanctions?

None of the conditions for a meaningful launch of a BRIC-based currency are in place, at least on a dollar volume basis. Talk of dethroning the dollar is silly.

However, sanction avoidance is another matter. Coupled with central bank digital currencies, countries and individuals will have a clear means of sanction avoidance. US sanctions on Iran, Venezuela, and other nations and individuals are a tiny percent of global trade, but those sanctions are not trivial to the individuals and countries sanctions.
 

America’s Love of Sanctions Will Be Its Downfall

The US uses sanctions as a foreign policy tool. It has weaponized the dollar.

ForeignPolicy says America’s Love of Sanctions Will Be Its Downfall

In the past two decades sanctions have become the go-to foreign-policy tool of Western governments, led by the United States. Recent economic and personal sanctions packages applied to Russia for its invasion of Ukraine as well as to Chinese companies for national security reasons mean the two powers have joined a growing club of U.S.-designated bad boys such as Myanmar, Cuba, Iran, North Korea, Syria, and Venezuela.

By 2021, according to U.S. Treasury Department’s report, the United States had sanctions on more than 9,000 individuals, companies, and sectors of targeted country economies. In 2021, U.S. President Joe Biden’s first year in office, his administration added 765 new sanctions designations globally, including 173 related to human rights. All told, the countries subject to some form of U.S. sanctions collectively account for a little more than one-fifth of global GDP. China represents 80 percent of that group.

It’s a mistake to total up trade when almost all of it involves China. But to the over 9,000 individuals and companies sanctioned, those sanctions matter.
 

Lesson of the Day: If You Weaponize the Dollar and Confiscate Assets, Expect Retaliation

On July 20, 2023, my lesson of the day was If You Weaponize the Dollar and Confiscate Assets, Expect Retaliation

A Brick currency is not a requirement for sanction avoidance. Any central bank digital currency would suffice. But a Brick makes things much easier, especially in cases where a nation does not want to openly antagonize the US but would instead prefer to just look away.

If a Brick makes it easier to avoid sanctions, individuals and companies sanctioned will use it, even if it is relatively illiquid.

Iran has been invited to the BRICS group. Iranian companies could trade oil to China for Bricks, then Bricks to Brazil for food, then Bricks to India for medical supplies. Goodbye sanctions.

What Constitutes Success?

If we change the definition of success from a meaningful percentage of global transactions to a meaningful way of avoiding US sanctions, the Brick has a potential to be a big success.

Iran and Russia, not Brazil or China may easily be the biggest BRICS success stories.

Notably, both Trump and Biden are overly reliant on tariffs and sanctions. But the US will not be able to enforce sanctions and track transactions that it cannot see.

This would not result in a new world order as hyped, but it could put an end to US setting sanction policy for the entire world.

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