【道琼斯通讯社】Brazil, Russia, India and China not yet a power bloc

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Brazil, Russia, India and China not yet a power bloc
http://www.theaustralian.news.com.au/business/story/0,28124,25637360-5018066,00.html

ANALYSIS: Rosalind Mathieson June 15, 2009 Article from: Dow Jones Newswires

WHEN the BRIC nations gather in Russia tomorrow for their inaugural summit, it should for markets be a case of "do as I do, not as I say".

For all the rhetoric about the US dollar and whether it can, or should, be replaced at some point as the global reserve currency, the real signal for markets should be from the actions of the central banks of Brazil, Russia, India and China.

The reality is they're still buyers of US bonds -- Treasuries, agency debt and the like -- even as they've been publicly asking the US for reassurances about the health of the dollar and its bonds.

The Russians have been making periodic noises about the greenback but at the weekend Group of Eight finance ministers' meeting, Alexey Kudrin said he didn't expect the country's allocation of its foreign exchange reserves among the major currencies to change significantly over the next year.

Russia holds around $US400 billion ($496 billion) in gold and foreign exchange reserves, the world's third-biggest stash behind China and Japan. Roughly a third of that is invested in US Treasuries.

Key Chinese officials have also been sounding supportive on the US dollar, unwilling to push their message too hard in case they end up destabilising the currency and hurting their own big US bond holdings.

The rhetoric is more about the BRICs nations asserting a larger place for them in the pecking order when it comes to global financial and economic influence. It's about asserting a bigger role.

That may unnerve markets from time to time, but until or unless there is evidence of an actual shift away from US dollar holdings, it shouldn't be cause for major concern.

The latest data show foreign central bank buying of US debt has continued, even as the US has unleashed a lot of supply on the market in recent weeks. Demand for those auctions has been fairly okay, all things considered.

And it's worth remembering that Japan, one of the largest holders of US bonds in the world, has been sounding fairly relaxed about the US dollar and Treasuries of late.

It's also worth keeping in mind that, for all the expansionary actions of China and the talk about the dual Asian powerhouses of China and India, the overall economic clout of the BRICs is not as large as they would think or like.

Brown Brothers Harriman's global head of currency strategy, Marc Chandler, says China may be calculated as the fourth-largest economy in the world, behind the US, Japan and Germany, but this takes Chinese data at face value (and, well, there are often large gaps between energy production and reported GDP growth, and the "amazing consistency" of the pace of growth).

Brazil is ranked as the 10th-largest economy, though it is roughly half the size of France, which is the sixth-largest economy, while Russia and India are in 11th and 12th spot.

Mr Chandler points out that Spain's economy is nearly 20 per cent bigger than Russia's and India's, and it is the eighth-largest economy. Together the BRICs account for a little more than 12 per cent of the world's GDP, and are also small in terms of the depth of their capital markets.

They also have limits on the kinds of instruments that are truly tradable, and closely-managed currencies. China's currency is hardly convertible.

Each of the BRICs has large FX reserves, but they seem to treat them differently -- India views its reserves as insurance, whereas Mr Chandler notes Brazil is more willing to use them for domestic purposes.

The BRICs are trying to find a unified voice, but they are only in the infant stages of becoming a true power bloc. They are large differences between their economies and thus their priorities.

The clearest signal right now in the noise from the BRICs should be actions, not their words.

In that regard, the US doesn't have much to worry about in the near term.