As leaders of emerging market nations known as “BRICS” reveal plans to launch a new world bank, the specter of an alternative monetary system is driving financial decisions from Argentina to Russia and China – and threatening the dominance of the US dollar.

BRICS

BRICS to bring together plans to create a $100 billion bank

The leaders of Russia, India, Brazil, China and South Africa are in meetings ending July 17 to bring together plans to create a $100 billion bank to compete with the World Bank and International Monetary Fund. The planed bank is a piece in a larger puzzle to provide a global alternative to Western dominance of the financial system.  This has been a stated goal of Russia and China, both of whom have engaged in trade deals that eschew the use of the US dollar.

China has recently signed numerous trade deals that purposely ignore the US dollar as the reserve currency of choice. In 2012 China announced a currency swap deal with Brazil that enabled trade to take place in local currencies. The country also successfully negotiated with other countries, including US alley Australia, and the United Arab Emirates.  It is the UAE deal that is potentially most worrisome development relative to the “Petro Dollar” trade, which ensures any transaction for oil be conducted in US dollars and is said to have resulted in military action when it is violated.

BRICs: Anti-US rhetoric the problem

While the BRICs nations have always been long on anti-US rhetoric the problem comes relative to collective agreement.  One of the key issues observers are focusing on is the ability on the group to agree on a location for the bank and jointly determine its first president.

Negotiations over the bank location are said to be deadlocked, as both China and India are vying for the physical location. The bank location be decided in concert with bank’s first president, who will serve a five year term. “Initially there seemed to be consensus that China was going to host the bank, but India continues to push for New Delhi,” an official source told Reuters.

Establishing a competing world bank would be the first step in creating a financial system that is not dependent on the west.  Establishment of an alternative finance system would enable countries such as Argentina to avoid US demands that it completely pay its previous bond holders, as the primary threat of being “shut out of the world financial system” is no longer as significant a concern.  The move to establish a new banking system could draw a collection of additional nations around the world who would then have the ability to chose not to play in the US and Western European controlled sandbox.