mBridge, a Bank of International Settlements Project Hyped by BRICS Fans as a Way to Evade Sanctions, Shut Down by Naked Capitalism

A case study in how much the world has changed, and how promoting narratives (boy do I hate that word) trumps getting things right is mBrigde, a BIS project that just got canned.

A bit of a “told you so” tone from Yves Smith but an excellent dissection on the practical challenges faced by BRICS (if they truly want to challenge US dominance) and how overenthusiastic multipolar fans hyped up projects without understanding the fundamentals of the issue at hand.

Importantly, we have Michael Hudson in the comment section saying this:

Yves highlights the big problem with well-wishers hoping that BRICS can create a better financial and economic system than the West has.

The idea is that financial independence requires one’s own “money.” But money itself is a legal creation that requires agreement by the governments issuing it as to (1) what countries — and who in them — gets the money that is being created, and (2) what will the money be created for.

This requires political unification and that a collective BRICS government is far from being created in the foreseeable future.

What CAN be created is a settlement system for intergovernmental debts among countries running surpluses and deficits. Keynes described such a system in his proposals for a banker back in 1944. If creditor countries did not pursue policies that enabled debtor countries to pay — by accepting their exports, for instance — then when the balances reached some critical mass, the creditor claims and debtor liabilities would be wiped off the books, because creditors had not taken responsibility for enabling debtors to pay. Such debts were bad loans, Keynes argued.

The US opposed this, wanting Hard Money, because the US had 75% of the world’s gold (and increased its share to 80% by 1950).

And today’s US would not take responsibility for loans to countries that can’t afford to pay their dollar debts without stifling their economic growth by accepting IMF austerity plans.

None of this kind of reform requires a common currency. The problem is the IMBALANCES among countries. That is the key.

As Hudson pointed out, the main problem has always been how are you going to sort out balance of payments issue. Keynes had the right idea with bancor, but with China running $1 trillion trade surplus these days, there is virtually zero incentive for China to get onboard with such a trade arrangement because bancor will only heavily punish the two countries (US and China) for running their huge trade deficits (huge import) and surpluses (huge export) - the two countries that have benefited tremendously from the status quo at the expense of the rest of the world.

This again goes back to why I always said that China’s only way out is to transition into a domestic consumption economy and give up their export industries, because the very act of transitioning itself has a very nice built-in incentive for China to embrace the bancor-like mechanism that will return the world to a more balanced trade, and also contains the antidote against dollar hegemony at the same time. That means industrial capacities more equally distributed across the world, as well as simultaneously blunting the force of US monetary imperialism.