Russian Central Bank Governor Elvira Nabiullina and Head of “BRICS Bank” Throw Cold Water on BRICS Currency Project

We’re late to a story that interestingly has been very much under-reported, perhaps because it is contrary to the anti-globalist narrative….already a minority faction in the Anglosphere. We’ve said for some time that the prospects for replacing the dollar are a long way away, even more so with a newly-created, reserve currency aspirant.

Our views have been confirmed by none other that Russian central bank governor Elvira Nabiullina, who has effectively cleared her throat to sanity check the desire of some BRICS leaders, including Vladimir Putin, to announce a splashy breakthrough on the “new currency” front at a late August BRICS summit.

Keep in mind that wanna-be dollar refusniks have already been able to achieve a key aim, that of escaping dollar sanctions, by engaging in bi-lateral trade in each other’s currencies. This isn’t as tidy as it seems, since unless the two countries trading with each other also happens to have close to a trade balance, one will wind up holding the other’s currency and not have any use for it. Russia has been grumbling a bit about all the Indian rupee it now has.

The reason the dollar was not perceived to be problematic as a currency to retain is the dollar has very deep investment markets, including of course Treasuries, and robust and well-settled laws and institutions so investors aren’t worried about, say, using a dollar depositary or clearing firm. Dollars can also be swapped readily into other currencies. As a result, investment flows in dollars dwarf trade flows. The Bank of International Settlements once found they were over 60x trade flows.

Needless to say, the need for ready tradeadility, investible assets, and reliable institutions/legal regime work against China as a successor any time soon. For starters, China likes capital controls.

Now to Nabiullina’s remarks. From

Bank of Russia Governor Elvira Nabiullina talked about the proposed BRICS currency on the sidelines of the central bank’s annual Financial Congress, which took place on July 6-7 in St. Petersburg…

The proposal gained much attention over the past week when Russian news outlet RT reported that Russia has confirmed the BRICS is launching a gold-backed currency. However, no BRICS officials have officially announced or corroborated the news.

The Russian central bank chief told reporters (translated by Google) that the idea of a BRICS currency “deserves attention.” However, she stressed that this project “will be quite difficult to implement,” emphasizing: “Like any idea of ​​a supranational currency, it requires the consent of many parties. This is not a simple project at all.” Nabiullina continued:

Therefore, we are still working and concentrating our efforts on the development of bilateral settlements using the national currency, the development of the infrastructure that connects our payment systems, what businesses need today.

While RT claimed that Russia has confirmed that the common BRICS currency will be backed by gold, a top official of the New Development Bank, also known as the BRICS Bank, has stated that the creation of any alternative to the U.S. dollar is a medium to long-term aspiration. According to him, “No one is suggesting right now that BRICS will form an alternate currency.” Nonetheless, many people expect a common BRICS currency to erode the dominance of the U.S. dollar.

Even in this short account, you can see the signs of lack of consensus. The RT story “announcing” the gold-backed currency scheme1 looks to have been the amplification of a tweet from the Russian Embassy in Kenya. With all due respect, the Foreign Ministry is not driving this train. And the story above confirms that this rumor has not been confirmed by any key actors.

Second is not just Nabiullina, but also the presumed key party, the head of the so-called BRICS Bank explicitly said that “No one is suggesting right now that BRICS will form an alternate currency”…except all sorts of commentators in the alt media, including In fairness, BRICS officials have been talking up the idea too.

Now why is a new currency such an uphill climb? Let’s start with two reasons (trust me, there are others). For any currency regime to operate, you need laws, institutions, regulations. Crypto users wound up trying to build bit by bit the key elements of a banking system, like custodians, and those still wound up relying on existing legal regimes (the agreement with the custodian said which law governed the agreement). Similarly, when the 11 year project to launch the Euro started, Europe had had a legal regime, with the European Court of Justice at its apex, for 40 years.

So pray tell…whose law and courts would govern a BRICS currency? You know no BRICS member will be happy to have their use of a BRICS currency subject to the jurisdiction of another BRICS member. But how long would it take to set up a free-standing court/adjudication system, and all the necessary laws? Oh, and then even if that were not a massive and fraught process, all of the BRICS members opting in would wind up having to agree that their court systems were subordinate to this new BRICS currency regime. How easy will that be to solve conflicts with regular commercial lows of these countries?

And isn’t ceding sovereignity to a new monetary regime at odds with the multi-polarity project, which is supposed to be about reclaiming national sovereignity?

Mind you, the legal part is only one element that would have to be solved. We’re skipping over clearing, settlement, supervision and regulation, and setting up a central bank/lender of the last resort.

A second problem is all the coding. It’s remarkable how just about everyone is insensitive to how miraculous the operational side of banking is. You get your bloody bank and credit card statements every month, on time, with all those transactions listed tidily and totaled up correctly, from geographically dispersed merchants. And they are never inaccurate. There may be fraud or fees you think are wrong, but you don’t worry that your credit card statement says you spent $110.57 at Home Depot when the charge was actually $35.33, or that your neighbor’s purchases wound up on your account.2 And mind you, any bank or card processor is handling a simply ginormous number of transactions.

Remember that it took three years of planning and eight years of execution to transition to the Euro. The introduction of a BRICS currency would require all participating countries to set up new currency fields in their payment systems and routines for keeping accounts in them and converting to other currencies. We discussed this topic at length when the idea of having Greece exit the Eurozone was A Thing. It didn’t take much digging to see how hard this would be. For instance, from the New York Times in 1998….when there was way less bank code than now:

On Jan. 1, 1999, the European Monetary Union will introduce the euro, a new currency that could have serious consequences for the computer systems of financial institutions and just about any company that deals in foreign currencies and exchange rates.

Compared with the much-publicized year 2000 problem, which can set computer clocks back to 1900 instead of recognizing 2000, the euro poses a greater number of technological problems.

Exchange-rate and tax software will need to be upgraded, financial statements redesigned, automated teller machines revamped and historical data converted — and that is just scratching the surface.

”The magnitude of the problem the euro poses is unbelievable,” said Nick Jones, research director of the Gartner Group Europe…

The Gartner Group estimates that it will cost European corporations, many of which have operations worldwide, $150 billion to $400 billion to upgrade their systems. Add to that the expenses in fixing the millennium bug, and that cost almost doubles. Mr. Jones said the cost of fixing each line of code is estimated at $1.10, with billions of lines of code having to be changed.

The problem that the BRICS currency participants would face is that all institutions in the system need to code up if they are to join in. As the Euro discussion above allude, that would include any businesses that intend to use the new currency. Rather than belabor the point here, the technically-minded can take a gander through Convert to the Drachma – Piece of Cake. Right…, Once Again on the IT Challenges in Converting to the Drachma, and More on the IT Implications of a Grexit particularly the comments, where payments systems and bank IT experts weighted in. From the start of the last post:

It has been surprising to see how much resistance readers voice to the fact that making large-scale IT changes within major financial firms is extremely time consuming and that most large scale projects fail. That means the difficulty of converting IT systems to incorporate drachma is a major process not just at single institutions, but even more so across complex and fragmented systems like electronic point of sale devices, like credit card terminals, and ATMs. That is why it took eight years of planning and three years of conversion for the introduction of the euro to go smoothly. And the size of the code base and the volume of transactions running over these systems has increased, while most of the legacy code on mainframes from that era remains in place.

Members of the commentariat also seem unable to grasp how changing this code is very labor intensive. As reader Andrew Williams put it:

What many of you “it’s easy” people fail to understand is that mainframe programming is nothing like today’s coding. COBOL, PL/I etc. do not support modern concepts like objects, polymorphism or anything else. Think assembly language with nicer mnemonics. XML? Hah, there is virtually no such thing for the mainframe. There’s no git, no mercurial etc. Virtually none of the tools that exist for Wintel/Linux are available to mainframers.

In large organizations there are hugely cumbersome change management processes. Where I am, a simple code change might take a minimum of eight weeks to deploy, and we only have a dozen systems. Actual application changes like envisioned here would take at least six to twelve months for coding and testing, and then another four months for deployment. For large banks, I would expect the timeframes to be even longer because the systems are so critical.

And we are not exaggerating when we say most large IT projects fail. From an update to IT Project Failure Rates: Facts and Reasons:

According to the Standish Group’s Annual CHAOS 2020 report, 66% of technology projects (based on the analysis of 50,000 projects globally) end in partial or total failure. While larger projects are more prone to encountering challenges or failing altogether, even the smallest software projects fail one in ten times. Large projects are successful less than 10% of the time.

Standish also found that 31% of US IT projects were canceled outright and the performance of 53% ‘was so worrying that they were challenged.’

Research from McKinsey in 2020 found that 17% of large IT projects go so badly, they threaten the very existence of the company.

This is before considering the common practice, at least for Wall Street IT projects, of aborting them before they can be classified as failure (“Oh, the specs were found to be outdated” or somesuch).

So as we said earlier, don’t expect the dollar to be dethroned any time soon. Its stature can and will fall but the prospects for a successor regime any time soon are poor. It’s too hard and costly. The dollar became dominant due to circumstances unlikely to be replicated: the US constituting 50% of world GDP at the end of World War II, having an established and reasonably well functioning banking system and legal regime, and being able to dictate the design of major institutions outside the Soviet bloc like the World Bank and IMF.


1 Note that the gold standard and gold-backed currencies are not viewed favorably by economists. First, due to a limited stock of gold, they do not allow for increases in money supply in concert with growth, and thus are deflationary. Trust me, as much as economists do not like much in the way of inflation, deflation is worse. Second, the idea that the provide for “soundness” is also exaggerated, since countries cheated all the time on the gold standard by repegging the value of their currency in gold terms.

2 This sort of thing happens at private clubs, where members put down the wrong member number or the accounting staff misreads it and puts the charge on the wrong account.

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  1. Palm & Needle

    Although I agree with the main thrust here, that a new BRICS currency will not be a quick and easy affair, much of the article is addressing a strawman argument.

    The Euro project was to create a common currency that individuals could use for their day-to-day transactions, and which would replace all the Euro area currencies; indeed an extremely complex implementation.

    However, this is not what BRICS aims to do in replacing the USD.

    The current discussions within BRICS are about creating a new currency only to be used for trade settlements between countries. It is certainly still a complex project, but nowhere near the complexity of what the creation of a Euro-like currency for BRICS countries would be.

    1. Yves Smith Post author

      Sorry, that is false and it is you that is setting up a straw man.

      President Vladimir Putin said on Wednesday that the BRICS countries – Brazil, Russia, India, China, and South Africa – are currently working on setting up a new global reserve currency.

      “The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” he said at the BRICS business forum.

      Or shorter:

      In April, the BRICS nations announced their plans to introduce their new reserve currency.

      The same piece mentions:

      Given the divergences among BRICS members, it is unclear whether the benefits of a common currency will outweigh the costs. Although an alternative currency effectively eliminates the cost of dollar conversion during international payments, the BRICS members might have to exercise caution before taking a step towards building a new currency as their actions could go against their individual foreign policy interests, considering their different reasons for supporting this new initiative.

      In case you forgot, the definition of a reserve currency, from Investodedia:

      A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.

      More along the lines of what Putin said:

      The BRICS group of emerging economies is planning to expand its membership and launch a new currency in an effort to decrease the influence of the US dollar in the global economy…

      If BRICS were to launch its own currency, it would provide an alternative to the US dollar and could help to reduce its dominance in the global economy.

      There are a number of reasons why there is a need for a new global currency. The US dollar has been losing value in recent years, and it is becoming increasingly volatile. This has made it difficult for countries to plan their economies and has also made it more difficult for businesses to make international transactions.–news-292814

      So for a BRICS currency to operate as a reserve currency, it would need to be widely held. And since it would be the currency of trade, any company of meaningful size would need to be able to keep accounts, both its own books and its accounts at bank in the new BRICS currency as well as in its domestic currency. Even though this would not be likely to include retail, it could….many countries became dollarized and offered dual currency accounts, particularly if the local currency was perceived to be weak).

      The point of mentioned the Euro was to give an idea of the extent of the coding task. Anyone engaging in non-trivial international trade would likely find it preferable to be able to deal directly in the new currency rather than be arbed or face an extra layer of fees.

      This Forbes article points out that the scope of the project has yet to be defined, and is most likely to evolve from improved cross border settlement mechanisms (something Nabiullina stressed) to maybe down the road a currency. But much greater ambitions have been raised at the political level for the late August BRICS meeting. It points out that more limited BRICS projects have foundered:

      To be sure, some of the group’s most ambitious past initiatives to set up major BRICS projects to parallel non-Western infrastructures have failed. Big ideas like developing a BRICS credit rating agency and creating a BRICS undersea cable never materialized.

      And de-dollarization efforts have been struggling both at the multilateral and bilateral level. In 2014, when the BRICS countries launched the New Development Bank, its founding agreement outlined that its operations may provide financing in the local currency of the country in which the operation takes place. Yet, in 2023, the bank remains heavily dependent on the dollar for its survival. Local currency financing represents around 22% of the bank’s portfolio, although its new president hopes to increase that to 30% by 2026.

      Similar challenges exist in bilateral de-dollarization pursuits. Russia and India have sought to develop a mechanism for trading in local currencies, which would enable Indian importers to pay for Russia’s cheap oil and coal in rupees. However, talks were suspended after Moscow cooled on the idea of rupee accumulation.

      1. Revenant

        I thought the same as Palm & Needle. If you look at what Putin actually said, rather than the commentary around it, he says “The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out.” That is not the same as a global and freely convertible currency.

        It is more consistent with a reserve unit of account between a grouping of states, like the SDR at the IMF or the Écu that proceeded EMU as the internal unit of account of the EEC.

        I think the pathway to a multilateral common reserve currency like the SDR is less arduous. Adding more trading partners may improve the balance between them (it is not a logical consequence, though): if Russia is accumulating rupees, perhaps China has a use for them to buy raw materials (iron ore, coal) from India rather than Australia….

        The creation of a common reserve currency could enable a common BRICS multilateral institution to issue financial instruments and thus divert savings from the dollar, with a view to recycling them as official lending to members or, more likely given sovereignty concerns, to a penumbra of weaker client states (Mongolia, the ‘Stans, African countries). BRICS countries might even issue bonds directly in this currency but that seems unlikely unless they had corresponding claims so there was no risk to their monetary sovereignty.

        Yves’s points on COBOL etc. are well made. It was noted in a Bank of England report at the time of the 2006-9 GFC that one major UK bank’s payment systems still ran natively in pounds, shillings and pence (abolished 1973!) with an overlay for decimal conversion!

        1. Yves Smith Post author

          The SDR has proved useless in practice, so it isn’t much of a model for anything.

          And sorry, see the definition of reserve currency. It has to be freely tradeable to do the job. So I don’t agree with your reading of what Putin said. If this were anyone other than Putin, you might have a point, but Putin is exceptionally precise. Now he may not be realistic about a basket of currencies being able to do the job, but he most definitely wants a reserve currency.

          1. Revenant

            The SDR has the use it was designed to have, denominating IMF capital. It was not the Bancor Keynes wanted because of US opposition but it fulfills a narrow brief for IMF internal purposes. I seem to remember a moment recently where more SDR rights were created as an IMF QE for some sort of developmental aid.

            As for a reserve currency, I have reservations (ha ha!) about the investopedia definition. A central bank’s reserves are foreign exchange reserves (rather than domestic banking system reserves). Under the gold standard, they were in gold; under the gold exchange standard, they were gold or dollars or assets convertible into dollars (many currencies not being freely convertible). Under Bretton Woods 2, fiat currencies are mostly convertible but not necessarily desirable: only USD, EUR, GBP, JPY etc are assumed to be liquid and freely convertible into other currency and into useful goods and assets and securities to be used as reserve currencies by third parties. Reserve currency issuers have no need of the other reserve currencies while the market has faith in their own fiat.

            Russia and China are pariahs in this system. China will not allow free convertibility and Russia is under sanction and, now the Cold War is back, would not want Western asset purchases of Russian assets. However, strictly between them and fellow travellers, the conditions for a reserve currency might be met. Is China prepared for Russia to recycle commodities profits into Yuan assets? Is Russia willing to accept Chinese manufacturing profits being invested in Russian assets? Are they both willing to accept lesser client powers amassing claims on the yuan or rouble? Are they willing to export demand?

            It may be that China needs a BRICS bloc to achieve rebalancing. It can only enable real wages to rise to increase consumption by reducing manufacturing margins but this margin compression can be held at bay if it can find cheap commodities to mitigate the decline in its terms of trade. China and Russia are mixed economies, a reserve currency could be used for substantial parts of their trade that lies in state or parastatal entities, especially given currency controls. I highlight China and Russia as the high profile examples but Indonesia has a middle income trap to escape, Brazil likewise, Saudi Arabia has a nasty case of Dutch Disease and needs to diversify its dollar reserves etc.

            I think the uselessness of an SDR or Écu is relative: if you start with a nonconvertible currency, it may offer some economic and geopolitical advantages among similar countries compared with full convertibility.

            1. Yves Smith Post author

              The scenario you discuss with China v. Russia recycling comes up in the bilateral trade scenario and is an issue independent of the reserve currency question.

              Just as with Ukraine, there is a disconnect between what political leaders want vs. what the technical experts, in the war the military, here the banking/finance types, see as possible in any reasonable time frame. The political leaders don’t care to understand that what they can have soon won’t displace the dollar much beyond what they have been able to achieve with bilateral trade deals.

              See for instance, headlines that describe what political officials want, like China, Russia and their BRICS allies have a ‘medium to long term ambition’ to create a dollar rival as a currency, official says, make clear that the aim goes well beyond a bancor type settlement mechanism. The article body then undercuts that with the BRICS bank official saying “Oh, no, we actually don’t plan to do that soon.” Wellie, NATO alsp pretends it does not want a direct confrontation with Russia but keeps moving up the escalation ladder because it does not want a visible defeat.

              More specifically, various commentators, presumably based on input like the Russian Embassy in Kenya getting out over its skis, were ALREADY expecting a big announcement re progress on the BRICS currency for its meeting just past, and that was formally kicked back to the late August meeting. You now see Nabiullina and BRICS bank officials trying to manage down expectations, but that story is getting zero traction. I tried looking, hard, for it being picked up anywhere and it was only in tertiary finance websites. So the political leadership is dominating this discussion and appears not to have been talked out of very ambitious but near-term not achievable ideas. I think they’d be satisfied with a roadmap (boy do I hate that expression) but the central bank/BRICS bank officials don’t even seem to want to deliver that, which suggests that a negotiation or briefing of key non-finance national officials on what could be done has not even happened.

            2. Greg

              I’m not across the detail, but all international postal transits are denominated in SDR with regular settlement between the national operators.
              Presumably there’s some bank-like structure centrally that exchanges currencies for SDR for this use, as I recall we had significant hedging and risk management in place for the SDR value vs our currency come quarter end. It may just be used as a standard unit of measure for pricing with all payments made in local currencies.

          2. Will

            An SDR type accounting unit serve as an individual reserve asset, which I think is what the BRICS is going to launch.
            The BRICS coin will only work in a system with strong capital control. Cross boarder capital flow has to be totally in the hands of central banks which will be able to execute cross boarder transactions. Commercial banks will be totally obsolete from operating cross boarder transactions – a dooms day for multinational banks and financial corporations. When this is implemented, we will be back to a system fully functioning in the 1960s and 70s, where capital investment into foreign financial assets will be heavily taxed! Bad news for the oligarchs!
            This will also help to balance international trade. For example, when China cumulates too much of BRICS coins through trade, much higher than its reported gold reserves, its CNY will quickly appreciate thus damage its export department. It can either increase its imports from partner countries, or increase its ODI to these countries to return to its current account balance. This will also benefits India with its manufacturing base.

            1. Yves Smith Post author

              Did you miss my comment about ceding national sovereignity? These countries will not agree to capital controls, even less so to a set of rules they’d all have to agree on and agree on enforcement mechanisms. The economies are too diverse for that, even before you get to the politics.

              And neither Nabiullina nor the BRICS bank head are even hinting at anything like that. Nabiullina is focusing on improving bilateral trade processes. That will provide far more bang for the proverbial non-buck.

              The SDRs have only a very marginal role now despite theoretically being an alternative to FX reserves. That fact should tell you a lot.

              1. Will

                The capital control system works well in the last 40 years in China. My clients has no issue making ODIs but investment into oversea financial and speculative assets were not allowed.
                And it does not require countries to give in their sovereignity but requests the financial department of the private sector give up their rights in cross-boarder transactions, which is anyway dominated by western banks and financial institutions, that is de facto giving up sovereignity. A central banking network against a globalist private banking network, is the vision.
                To attract other players to the game there will be benefits. Artificial exchange rate, which will not be dominated by market speculators but by central banks will provide discount for goods to be priced in the new currency. A 20% discount on Russian oil or Chinese industrial goods in terms of gold for partners to accept the set of rules.
                But sure, Rome is not built in one day. We will see how things develops in August.

      2. Palm & Needle

        Thanks for the detailed clarifications.

        The reason I said the discussion about the Euro was a strawman is that much of what was done for the Euro implementation at local / national level would not be necessary for the new BRICS reserve currency. For example: no bills or coins, no ATM withdrawals, no personal bank accounts, no elimination/replacement of existing BRICS currencies, no readjustment of retail prices.

        This does not negate your points about tradeability, courts, coding. Rather, I claim that these issues in themselves were far more complex in the Euro implementation than they would be in a BRICS reserve currency, since the Euro project has a much deeper societal reach.

        The structure of the argument in the article to me reads like this: “building that car will be very difficult, because we already know that building airplanes is very difficult”.

        On a separate vein: in your reply you quote the Investopedia definition of a reserve currency. I wonder if this definition is general or particular. Particular, in the sense that it defines reserve currencies according to how they have operated within specific historical contexts to date (e.g. the Pound Sterling and US Dollar); or general, in the sense that the definition is independent of historical context. The answer is not immediately clear to me.

        The relationship between “reserve status” and (de)industrialization is now well understood. China has already indicated they do not want the Renminbi to replace the US Dollar, I imagine for that very reason. And BRICS formed not just to oppose US hegemony, but in order to facilitate and accelerate development within the bloc; it’s a solidarity network looking inward, not just a counterweight to an external power. The projects being set in motion imply a fundamental restructuring of geopolitical economy that will require a different theoretical framework to understand and analyze. I think it may well be that BRICS is eventually able to create a currency that operates as a reserve and yet very differently from reserve currencies seen to date. But as you said, yes it will be a complex thing to implement.

        1. Yves Smith Post author

          I think you misunderstand the coding issue. In countries outside the US, the import/export sector is typically a much larger % of GDP. As a result, you also (ex oddballs like Sweden) you also have many companies engaged in international commerce, both as buyers of inputs and exporters. They are likely to find it to be in their interest to use the new reserve currency at a minimum as a unit of account to reduce the number of FX transactions they would have to engage in, which (having had the biggest bank FX trading operation in the world as a client) the dealers nick customers on every trade, so minimizing the # of FX trades is in their commercial interest. That means they will want bank accounts denominated in the reserve currency as well as of the countries in which they do business. While the Euro had a few year transition period when the national currencies existed along side the Euro, when that ended, banks and multinationals were running far fewer currencies and FX transactions due to the elimination of FX trades within the Eurozone. Complexity and transaction volumes decreased.

          It will be the reverse with operating a BRICS reserve currency along side national currencies.

          As for ATMs, aside from the stocking and maintenance of the ATMs (which does take some doing), loading a stored value card would have a similar effect in terms of # of transactions, which is the driver of complexity. So say you take $200 out of your ATM, or put $200 on a stored value card, and then make 10 purchases. The ATM withdrawal/stored value card loading is only one more transaction and thus not a big addition.

          The question is how far this currency gets in the small business realm, and whether anyone sees fit to allow its use in illicit activities, which sad to say nearly always wind up greatly increasing uptake. If someone decides that letting the currency facilitate the arms trade or the sex trade or drug dealing (which at least in the US has been used as a way to finance covert operations), those chains are likely to push it into near retail use (as in paying their people). So I don’t think you can say confidently how widespread or limited its use will be. If the BRICS want to take down the dollar, which is the stated aim, they need to think in terms of broader rather than narrower uses.

          1. Revenant

            Is taking down the dollar Putin’s stated aim, though? Or something more utilitarian and less grandiose? That is the question.

            It is analogous to the aims of the SMO versus all the Big Arrow campaigns that the armchair generals keep ascribing to Russia. :-)

            1. Yves Smith Post author

              I said no such thing with respect to Putin but have pointed to other commentators who have, such as the RT story featured in the post. Putin said he wants a reserve currency. He’s an exceptionally well informed leader and precise speaker. It is you who are trying to make his words mean something other than what they would logically seem to say. A reserve currency is a well understood concept and I find the efforts to reassign meaning to be frustrating.

  2. Howard Brake IV

    That diatribe on the lack of modern tools on the mainframe shows its age – In 2023 the newer tools now exist, and today’s mainframes have had their instruction sets.modified to support Java. DevOps practices are now common place.

    1. Yves Smith Post author

      Sorry, the post is correct. Banks run COBOL.

       There are 220 billion lines of COBOL code still in use today.
       COBOL is the foundation of 43 percent of all banking systems.
       Systems powered by COBOL handle $3 trillion of daily commerce.
       COBOL handles 95 percent of all ATM card-swipes.
       COBOL makes 80 percent of all in-person credit card transactions possible

      Banks have made very little headway in migrating off legacy systems. Aside from the fact that this is precisely the sort of large IT project that prototypically fails, insiders have guesstimated that the other reason it does not get done is that it would require on the order of all of a bank’s operating profit for three years. Better to use duct tape and baling wire and hope things will behave long enough so as to be someone else’s problem.

      This May 5 post provides a more politically correct confirmation:

      Bill Hinshaw from COBOL Cowboys:

      “I just got through a conversion (for a system) to go from COBOL to Java, It’s taken them four years, and they’re still not done.”

      The banking industry relies heavily on computer systems to manage transactions, customer data, and other critical functions. Many of these systems were built using the COBOL programming language, which was popular in the 1960s and 1970s. As newer programming languages and technologies have emerged, the banking industry has struggled to keep up with the pace of change.

      One challenge the banking industry has faced is the difficulty of migrating away from COBOL. COBOL code is often deeply embedded in legacy systems, making it difficult to replace or update without disrupting existing operations. This has led to a situation where many banks are still using COBOL-based systems that are decades old.

      One consequence of this is that it can be challenging to find developers with experience working with COBOL. As a result, banks may struggle to maintain and update their legacy systems, which can lead to reliability issues and security vulnerabilities.

      Another consequence is that it can be difficult to integrate COBOL-based systems with newer technologies. For example, banks may struggle to integrate mobile banking apps or other digital services with legacy systems built on COBOL.

      In recent years, there have been efforts to modernize the banking industry’s technology infrastructure. However, this is a complex process that requires significant investment and planning. Banks must carefully balance the need for modernization with the need to maintain existing systems and processes.

      1. ChrisRUEcon

        LOL … sad but true … I remember doing a spit-take years ago when I saw an ad for Object-Oriented-COBOL … :)

        1. JCC

          Along the same lines:

          As the article above points out, OO Cobol is not used in legacy COBOL systems. The other BIG issue pointed out in this article, learning the legacy language is not the biggest problem, it is learning the systems, hardware and communication, the language functions upon.

          As a former “systems” oriented Systems Administrator, I can say with much confidence that too many programmers and Systems/Network Administrators understand little about how the hardware actually functions.

          Hopefully the following isn’t too boring, but here are two quick anecdotes to describe typical situations similar to what I saw constantly, and these are simple situations:

          One gentleman, a Lead, who prided himself on his systems abilities in programming, security systems, and systems administration, struggled with getting two critical security systems, covering our entire company, to communicate. I asked him if he had checked the cables running to the router. “No, I’ll do that now.” Still no luck, so he spent another couple of hours “fixing” the software. Still no luck. He called me and asked for more help. I then asked if he had used different ports on the router itself. “No, I’ll try that now.” Five minutes later he called and said, “Thanks, bad port on the router.”. It took him over 5 hours to fix a simple troubleshooting problem on modern equipment.

          Another security and systems admin called me to complain about massive traffic between a group of Windows systems being used for critical weapons testing. It was blocking all communications to other critical systems needed to complete the test and, to him, it was an obvious problem with a security system that I was responsible for. I took one look at the traffic. It was legacy, unnecessary MS NETBIOS communications between the systems. I told him it was unneeded and to turn it off and then check his communications to the outside systems. It turned out that he had these 8 or 9 systems connected to a hub (a major mistake in itself) and the hub was not connected to the router necessary to communicate with the other systems.

          Neither of these situations are untypical and both these people were Systems Administrators working with modern equipment that knew little beyond the immediate software they were responsible for, and both had been in their jobs for years.

          Imagine the challenges that young programmers face before they can even get started upgrading any of these legacy hardware systems Both the time and cost are at stratospheric levels.

          1. Howard Brake IV

            My beef with the original post back in 2015 was the author complained that the tools used on Linux/Windows platforms weren’t available on mainframes. Not only do they exist on mainframes, but they are now being fully integrated as part of shops moving away from legacy waterfall development methodologies but now are using Agile/DevOps methods.

            Hell, IBM mainframes supported Unix/Linux back in the 1990s and leveraged that to support server consolidation, where thousands of servers would be hosted by a maxed-out mainframe under VM.

            Yves made a mistake when she read my comment as if I was talking about legacy systems when I was criticising the 2015 post that stated that tools used on Linux/Windows tools don’t exist on the mainframe, when nothing could be further from the truth.

            As the late Sufi master Idries Shah would state: “He who tastes, knows.”.

            Core Banking systems rarely get ripped and replaced, but they do get ” Parted Out” where pieces get spun off onto clouds hosted platforms.

            And mainframes do eventually kicked to the curb – Sabre, the airline reservation system, for example.

            1. Yves Smith Post author

              Your average bank runs transaction volumes at least 3 orders of magnitude more than Sabre. Banks have been talking about migrating off legacy systems since at least the 1990s and overwhelmingly have not. I suggest you not generalize based on use cases that are wildly different than banking.

      2. Max Z

        It would be interesting to see the per-country COBOL stats. I have a feeling that since the Western banks were computerized in the 70s and had no problem with access to the hardware, that’s where mainframes and ancient languages come from. However, I’m pretty sure that this is not the case with Russia and many other countries. AFAIK USSR wasn’t able to purchase any mainframes during the Cold War, it had to build their own. And they weren’t used in banks. The computerization of modern Russian banks must’ve started with their initial appearance in the 90s. So either they have more modern mainframes or just use off-the-shelf high-end server hardware likely with Java on it. I wonder about China and India banks, though.

            1. Howard Beale IV

              The Soviets decided to use IBM versus the Seven Dwarfs (Burroughs, Control Data, General Electric, Honeywell, NCR, RCA, Sperry Univac)

          1. Max Z

            Ok, I stand corrected, some machines were purchased. But all the examples in the article point to industry and military. Those weren’t for banks.

          2. Howard Beale IV

            The Eastern Bloc was trying to establish their own nascent computer industry – that’s one of the reasons why they focused on using IBM 360/370 architecture, versus the Seven Dwarfs (Burroughs, Control Data, General Electric, NCR, RCA, Sperry Univac, Honeywell)

        1. R.S.

          The computerization of modern Russian banks must’ve started with their initial appearance in the 90s. So either they have more modern mainframes or just use off-the-shelf high-end server hardware likely with Java on it.

          I can offer only some anecdotal evidence, a dozen or so banks, from late ’90s till mid ’10s . They were running either in-house systems or customized banking solutions (three different platforms). Only one bank used mainframes and relevant software. All other systems were RDBMS-based, that is, a server backend in procedural SQL (Oracle or MS) doing the heavy lifting, and frontends written in God-knows-what (at least two were written in Borland Delphi FGS). The hardware was more or less off-the-shelf servers, often Proliants.

          As far as I know, RDBMS as a backend is still the preferred architecture, but things may have changed.

          1. Howard Beale IV

            When I was working for a banking software vendor in the 1990s Iran was looking to use our software, along with other middle east countries. The cultural differences were enough to scotch the whole thing, and no sales ever occurred.

          2. Howard Beale IV

            When I was working for a banking software vendor in the 1990s Iran was looking to use our software, along with other middle east countries. The cultural differences were enough to scotch the whole thing, and no sales ever occurred.

          3. Howard Beale IV

            That depends on the size of the bank – smaller banks are more likely to run relational databases whereas the goliath banks are more likely to run IBM’s IMS.

            1. Yves Smith Post author

              It took me one minute to find something that contradicts your claim.

              Traditional relational databases will always be used by banks in their IT infrastructure, where they can serve as valuable systems of record. In a digital economy, where the customer experience is everything, however, banks will look more and more to make IoT, mobile, and AI apps and integrate them. To match, these apps need a database, which can also be used as a way to get people interested. Non-relational (NoSQL) database technology comes into the market at this point. NoSQL is better than traditional relational databases (SQL) for tasks that need fast access to data from a variety of sources and systems that can adapt to changing market conditions. Not only can NoSQL


              Large banks overwhelmingly use mainframes and they account for a disproportionate amount of total transaction volume. Ditto the Visa and Mastercard networks.

              No more comments on this topic without links to support them.

          4. Howard Beale IV

            One software vendor is used by 6 of the top 10 banks in the US for their core banking systems. Guess who it is?

            1. Yves Smith Post author

              This is thread-jacking, a violation of of our site Policies. You’ve pulled the conversation off topic and are making far too many comments. I also believe you have jail broken. If so, I will expunge your comments. Banned is banned.

        2. Howard Beale IV

          Given that India is the home of bank outsourcing, you can bet even money that they have a large contingent of mainframes trained resources (if they don’t already have equity stakes in banking software vendors like DXC…)

      3. dirke

        Legacy languages like COBOL and FORTRAN have inherent advantages over the modern languages in performance and security. Some of the worst code I’ve ever run across has been written in Java. A 500,000+ lines of objected cluster ******. As a OS writer, compiler writer, designer of secure systems and critical systems, I’d rather have my financial transactions handled on COBOL than on some of the modern languages. By the way I’ve coded in over 20 languages. Current code development practices, have evolved to “Hack it out and Pray that it works”. This does work well for financial systems, flight control systems (737 Max) or autonomous driving systems. And before anyone decides to ream on my comments, there isn’t anything use that doesn’t have my finger prints in it. Example, I’m one the authors of Window NT.

        1. jsn

          With regards to your finger prints, I think you absconded with “not”: your prints are all over it.

          “This does work well for financial systems, flight control systems (737 Max) or autonomous driving systems.”


        2. Howard Beale IV

          Were you part of DEC and were recruited to join Microsoft?

          When it comes to secure OS’s, its Z/OS. Had you asked me that in the 1970’s, it would be Multics.

  3. digi_owl

    It may well be that people a reading “Euro” into this when it will be more like IMFs special drawing rights, or something akin to Keynes Bancor.

    Meaning more like an accounting and exchange mechanism for internal BRICS use than something that will be used to pay for some high street handbag.

    1. Yves Smith Post author

      Please see my long comment above which posted after yours. That is not the objective political leaders have set. That is why Nabiullina and the BRICS bank head are having to talk them down.

  4. Johnny Conspiranoid

    “Russia has been grumbling a bit about all the Indian rupee it now has.”
    This might be a stupid question but why doesn’t the Russian Central Bank put these rupees on to the currency exchange markets to get rid of them?
    Also, why does the state bank end up holding all the rupees? They could offer rubles for sale at a rupee price that encourages people to look to the commercial exchanges to unload their rupees with the aim of keeping the state’s stock of rupees ar a desired level.

    1. Polar Socialist

      Because Russia has been grumbling about the rupees precicely because the rupees have to be sold to get some other currency, then use that currency to buy Indian products or services and then the Indian party having to buy rupees with that currency – usually yuans or dirhams.

      This is because Indian government has been dragging it’s feet in removing obstacles from direct use of Russian owned rupees. Indian exporters have also grumbled a lot.

      1. Johnny Conspiranoid

        “the rupees have to be sold to get some other currency, then use that currency to buy Indian products or services”

        So you can’t use Indian money to buy Indian products and services?

        ” Indian government has been dragging it’s feet in removing obstacles from direct use of Russian owned rupees.”

        Are these rupees digitaly taged as russian owned rupees? If not then how are these odstacles created?
        If the money paid isn’t freely exchangeable then the goods haven’t really been paid for.
        And why would the Indian doing this?

  5. KD

    Perhaps a stupid question but, say Russia-India trade imbalance, and Russia has too many rupees, can’t they just use the rupees to buy gold and other commodities in Indian markets, and the problem is solved? Or is the problem scale relative to trade imbalances? Or is it lack of control over the commodities? Wouldn’t they just be better with some kind of commodity bank instead of working out some kind of new currency? Second, wouldn’t some kind of commodity stock/store be the first step to a currency?

    1. Polar Socialist

      See my reply above. The problem is that Russia can’t use rupees to trade with Indian exporters because Indian government prevents it. That’s why Russia doesn’t want any more rupees until the issue is settled.

      Then they are happy to buy stuff and services from India with rupees.

      1. KD

        Well, here goes, if they can’t even get the Indians to let them trade with Indian exporters, how are they going to get all the BRICS together to create some international institutions around some kind of international currency?

        It seems a lot simpler to just do bilateral trade deals with some kind of access to foreign export markets to address trade imbalances than it is to create a new currency.

        1. Yves Smith Post author

          Yes, thanks for saying that. It’s a key point I missed.

          Re the point about buying stuff from India, given that India is laundering Russian oil, I would suspect that even if India gets over letting Russia use its rupees for trade (why woudn’t India want more domestic demand? Everyone is supposed to love to export), I return to my original claim, that Russia will wind up with way more rupees than it can use. India looks like just the sort of place to have a structural trade imbalance with Russia. Then what?

          1. jsn

            This is where Keynes put mechanisms that forced creditor adjustments in his Bancor proposal. The most pointed manifestation of the sovereignty issue you keep raising, telling Central Banks what to do.

          2. jan

            You’d think it’s in India’s interest to settle that issue. Why are they being difficult about it?

          3. Susan the other

            so question – Could India be straddling the political fence? they are allowing Russian oil imports but not allowing Indian exports in exchange? It doesn’t make sense. Which then asks, how do we get rid of the idea that money is a sovereign asset? It’s just a political sledgehammer. thank you for this post. even though it is so complex it is mind boggling. That binary coding is this complex kinda means that if this was coded on a quantum computer it would reach critical mass. It’s already one big backfire of extortion when it comes to Russia especially. I think we’d be wise to ration every commodity on the planet. And then afterward monetize it. It can’t get any more convoluted than it already is.

          4. KD

            I remember watching a Mark Blythe video where he was talking about the gold standard, and he pointed out that the prevalence of the gold standard in the 19th century was not based on some economic philosophy, it was a solution to international trade, if you are trying to buy goods in Argentina with some obscure continental currency, its very hard to get someone to take the money, whereas if a currency is convertible to gold, you take the currency. In the short term, you could have bilateral trade agreements with agreements on redemption of currency to gold. I guess the problem for the importing country though is that they have the expense of maintaining gold reserves, (which eliminates some of the benefit of the currency imbalance) and it basically requires maintaining a fixed currency rate.

          5. fjallstrom

            What to do with a mountain of rupees? Of the top of my head, if allowed to use rupees freely Russia could:

            1 Buy Indian goods and services that they need themselves
            2 Buy Indian goods and rawmaterials that they could re-sell or hoard (gold has been mentioned)
            3 Buy non-Indian goods and rawmaterials that India launders
            4 Park their rupees in Indian government bonds, earning an interest (in rupees)
            5 Buy Indian real estate and corporations
            6 Set up an invest in India fund to create new goods and services Russia has use of

            To go through these:
            1 Straightforward trade. As you point out, the demand in Russia isn’t enough for this alone. Demand could be increased by for example stimulating Russian tourism to India. In itself pretty unproblematic.
            2 India might not want Russia to do either re-selling or hoarding. If we take gold as the mentioned example, India might run out of gold and governments tend to view gold strategically. Re-selling Indian goods presumably would be at a lower price, undercutting India’s own exports. Would probably sour relationships between Russia and India.
            3 Laundering trade traditionally goes in both directions. Finland and Yugoslavia built wealth on having trade realtions with both blocs during the first cold war. With a hidden computer in lots of consumer goods this might be harder to do discreetly today. Depends on how much India is willing to anger the US.
            4 Parking rupees in Indian government bonds doesn’t solve any problem, but instead causes Russia to get even more rupees. Yet, it kicks the ball down the road, which is often popular politically.
            5 Buying up Indian corporations and / or real estate will likely be unpopular in India. Buying real estate drives up prices, buying corporations could be unpopular among economic elites. Not long term viable.
            6 Investing in India could cause resentment, but could also be popular. See Belt and Road, for examples of both.

            The politically most stable for the Russia-Indian relationship is probably a combination of (1) increasing Russian imports from India and Russian tourism to India, (3) increasing trade through India (with India taking a cut), (6) investment in India where mutually beneficial (with lots of Indian input on what they need) and (4) parking the rest in Indian government bonds.

            But all that hinges on India letting Russia use the rupees.

            1. Yves Smith Post author

              Please bone up on structural imbalances. You could substitute the US and China in your story above, but Indian sovereign debt is rated BBB-, which is barely above junk. It’s a speculative asset and not a reliable store of value.

      2. Kouros

        It seems that the Indians are playing for the other team (US), getting Russian oil for worthless money and then providing it to the west at whatever rate needed. One way to pauperize the Russians.

        The thing is that it can last only so long until the Russians will say Niet.

        But I am looking for the day when the unreliable Indians will be in a deeper relation with the unreliable US. That will be fun.

  6. gsinbe

    Regarding this point in your post, “The reason the dollar was not perceived to be problematic as a currency to retain is the dollar has very deep investment markets, including of course Treasuries, and robust and well-settled laws and institutions so investors aren’t worried about, say, using a dollar depositary or clearing firm. Dollars can also be swapped readily into other currencies.”

    Don’t the recent actions of the US (confiscating Russian assets, sanctions, etc.) give strong incentive to find an alternative to the dollar? I’m thinking of countries like Saudi Arabia who now find themselves out of favor with the administration.

    1. Anon

      Yves’ point is not that it will never be, but that it is a painstaking process, which will endure beyond, say, the cessation of conflict in Europe. My sub-note being, that to translate military victory in (let’s face it, disposable) Ukraine into anything more meaningful than a tenuous, terrorized return to the status quo, and mostly (let’s face it) symbolic gains, Putin (or own-goaling neocons) would have to go quite a bit further to create the (calamitous) conditions which necessitate an urgent international transition.

      One could argue the US is creating the impetus for the global community to make the effort, but realistically, they just have to throw a pizza party and start being fair (not even nice!), and the world would probably acquiesce.

      People are fond of true liberalism, Coca-Cola, and smiling. Just spit shine the American dream, and do good business.

  7. The Rev Kev

    I suppose that Elvira Nabiullina is correct in her estimate. The introduction of the Euro decades ago may have seemed logical but because it was not thought out properly has caused all sorts of chaos since then. More so as the EU has been demanding that all States get rid of their currencies and adopt the Euro. There is no timetable that says that a BRICS currency has to be introduced so soon. It would be better to spend the time to build up the infrastructure, iron out the disagreements, sort out the banking code and all the rest of it. So the actual introduction of a BRICS currency would be the capstone on all the work that has gone before. And unless the White House changes their tune, there will not be less of a demand for such a currency any time soon.

  8. James T.

    Well I have a crazy thought for the US dollar. Based on what I have understand from this article and the subsequent discussion is that we are stuck with the dollar as the reserve currency. From the technology challenges to the legal issues and the fact that is in embedded in most of all debt and trade plus the inability to solve trade imbalances then their really is not another option. In that case, why can the US not just pay 1% treasury rates at a maximum and reduce the interest costs and reduce the outstanding debt with the savings. I know that would make the debt less attractive but who cares the Fed can just book it and keep printing money by making reserves available to the commercial banks. Another option would be in the US to start extending credit cards and mortgages and car loans out to say 100 years and reduce the payments drastically to the consumers to offset the inflation and boost the economy. Or maybe, just write off our debt by defaulting and reset everything and we will have saved a tremendous amount of interest owed. I guess the point I am getting at is it seems one way or the other the entire system is set to collapse at some point in the future so the whole system is wildly unstable anyway, right?

  9. Michaelmas

    @ Yves, or anybody who understands the eurodollar market —

    I have a question. This whole business of the dollar as global reserve currency is further complicated by the fact that the the vast majority of global financial transactions are carried out in eurodollars — as much as 90 percent, Nicholas Shaxson claimed in TREASURE ISLAND.

    Not only are eurodollars …

    [1] Not subject to the U.S. Federal Reserve’s legal jurisdiction, nor indeed — as far as I understand — effective control by the US (and that was the specific purpose of creating them, see below);

    But also ….

    [2] The Eurodollar market is not run by any government agency, and while its growth is hard to estimate the Eurodollar market is by a wide margin the largest source of global finance. Thus, for instance, in 1985 the Eurodollar market was estimated by J.P. Morgan Guaranty bank to have a net size of 1.668 trillion, and in 2016 the Eurodollar market size was estimated at around 13.833 trillion.*

    (*I’m sourcing this off the wiki).

    Now, the most common and plausible story of the Eurodollar’s creation I know of (there’s apparently more than one) is that it was originally created by the City of London in the mid-1950s-mid 1960s to facilitate trade for the City’s customers in the USSR. See:-

    The Origins of the Eurodollar Market in London: 1955–1963

    The Eurocurrency market is arguably the most dramatic financial innovation in the post-war period yet very little is known about its origins. This paper examines two facets of the Eurodollar market: why it happened and why London kept most of the business. Using archival evidence, this article reveals that Eurodollars were accumulated earlier than has hitherto been thought … High interest rates, self-regulation by banks, and changes in access to the forward exchange market combined in mid-1955 to encourage innovation by the Midland Bank. The major source of competitive advantage for London was the regulatory environment which combined tight money in the domestic economy with relative freedom in international finance ….

    And a passage from page 7 of this paper provides some historical context that makes the whole thing very clear and plausible. As follows: –

    …it was agreed that ‘‘whilst the Bank (of England) would much prefer to see nonresident access to London money rates through the medium of sterling held on the appropriate types of nonresident account, they would raise no objections to banks accepting deposits from nonresidents and converting these to sterling through swaps in the London market ….

    In other words, in a period when the British Empire was ceasing to be and the UK sterling as global reserve currency had just been superceded by the US dollar, this was a way for the City to retain some degree of primacy in global finance.

    Okay. Here’s my question or thought experiment (possibly naive).

    Is a scenario possible where the dollar — in the synthetic form of the eurodollar — remains the global reserve currency into the indefinite future even though the US, Washington, and Wall Street might have been effectively removed from the picture (i.e. if the US entered some failed state-type civil collapse, say)?

    Thanks in advance (and also for your patience).


  10. chuck roast

    Thank you for “Note 1”. That’s all you need to know about the ‘new gold backed currency.’ I frequently see this trope in headlines, and reading the associated piece always gives zero, zilch, nada information about the proposed mechanics of this ‘new gold backed currency.’ Perhaps it’s because any attempt to describe said mechanics is akin to plumping the fabulous mechanics of the Stanley Steamer as the portal for going back to the future. Please circulate widely.

    BTW Nabiullina seems to be very competent financial manager. Pootin seems to have a way of finding them. Maybe because he spots BS artists right away.

  11. timbers

    Ironically, one factor that makes Russia a possible candidate for reserve currency status in the distant future is her commodity wealth, which reduces somewhat the likely hood of experiencing what Russia has with India: a dearth of products to use accumulated India rupee.

    Russia has a broader product mix than many other nations, at least in essentials.

    But I rush to add I can’t speak for other factors like deep markets or rule of law allowing for safe currency holdings in Russia by other nations…to mention just a few issue I know little about.

  12. Piotr Berman

    It seems that multiple currencies and even future contracts for commodities could be used as reserves (e.g. Argentina experiencing huge drop in exports caused by the drought issues agro contracts 2-3 years forward to balance the trade payment this year), with individual banks and central bank making any combination each one wishes.

    The problems are in security of access to those assets, but if you put all eggs in a basket of collective West currencies or bank services (recall UK freezing gold of Venezuela) you experience a huge risk for blackmail and 100% loss. There goes the efficiency of Western financial system. I was not aware of Indian government playing games with access to rupee accounts owned by Russians, this is a type of stuff that has to be worked out anyway. If India wishes to renege, hard to stop it except awareness of future consequences.

    One problem with Euro etc. is that they enabled too much, so accumulated balances of payments could loose connection to economic reality. Prime example is Greece and Italy being enabled to borrow too much, leading to a collapse of Greece and tottering of Italy. Euro system was extracting promises of fiscal discipline and in exchange, reduced borrowing costs. However, when Bank of Crete has fallen, it should remind that Epimenides paradox is still valid [in logic, it means that it possible to make statement that just make no sense, neither true or false, but also, that you cannot trust Cretans (and not just Cretans) even when they bring financial reports, cf “I fear the Greeks even when bearing gifts”, by Vergil].)

    In short, risks are not erased just by not allowing them to happen. Markets have to be disciplined by possibility of bankruptcy. Re-assessments of ability/willingness to pay is necessary.

  13. Lex

    My read is more political than economic. There seems to be a debate inside Russia about how to run the Russian economy. So far the standard central bank doctrine is winning. That debate may be coloring what we’re getting in terms of information.

    As Yves has pointed out, BRICS isn’t a great organization to implement this because it’s so loose and situationally voluntary, though maybe that’s a sort of asset here. I also agree with her on accepting Putin’s words (dependent on translation) because he’s precise in using them. I have a hard time seeing a newly created reserve currency but I do wonder about a trade currency. Though I’m not nearly well enough informed to spell that out. I can see how it’s hard to have one without the other in practical terms.

    It does seem like the rest of the world will have to figure out something. Not to bring down the dollar but to protect itself from US economics and increasingly erratic and irrational US politics. I can see a grand solution as tempting but maybe it’s best to let that grand solution evolve organically?

  14. Grebo

    There are ‘reserve currencies’, ‘foreign reserves’, and ‘central bank reserves’. They are all different and I don’t think most politicians or media have them straight in their minds.

    BRICS doesn’t (it seems to me) need a ‘reserve currency’ or even a currency. It needs ‘central bank reserves’, which some countries sensibly call ‘settlement balances’. These might be settled by using ‘foreign reserves’.

    There would be some technical issues to thrash out, but there is a fundamental question to answer first: do the BRICS countries all agree to keep their trade balanced?

    Given that China, South Korea, Japan, Germany, Singapore all got where they are today by generating large trade surpluses the answer may well be ‘no’.

    1. ChrisRUEcon

      > BRICS doesn’t (it seems to me) need a ‘reserve currency’ or even a currency.

      Concur with the 1st part, but not with the second. My belief is that a simple transnational community currency would suffice. As most (if not all) community currencies are, it should be non-convertible. That is to say, there is no exchange of state-to-community currency for any nation. The allocation of the community currency is probably the most interesting part and really depends of what can be denominated, and whether there is a center-periphery nature to the nations in “the community”. I have thought that an ideal (closed) system would see issuance come from the center to periphery nations using a (kind of) per capita formula to determine “how much”. The periphery could spend into the center of heavy goods, by virtue of which the center nations would now have community currency reserves to spend back to the periphery.

      I have made my 1st official inquiry into the inter-disciplinary Ph.D. at UMKC … I am going to (try to) do this unless someone tells me it’s bat-sh** crazy … in fact, even if someone does, I’m still going to try … LOL.

      I think any plan to create a new reserve currency is too difficult and fraught by exchange/control challenges. Why would you want to have reserves convertible and therefore sanctionable? Why does no one seem to realize that sometime the only way to win, is not to play the game. In this case, not playing means building a completely separate system for a non-convertible currency.


      1. Grebo

        I don’t think we disagree, except about the meaning of ‘currency’. I use it to mean money that circulates freely, that anyone can hold or spend. That would create all the headaches Yves mentions.

        I envisage a non-circulating trade money administered by a meta-bank with only central banks having accounts. Central banks buy it with their own or foreign currency at a rate set by the meta-bank according to trade balances. Allocation becomes a non-issue if trade is balanced, if it’s not someone’s going to get stuff for free, which is the situation we want to escape. Keeping it balanced would be done by adjusting exchange rates, import too much and your currency becomes worth less meta-money until you catch up.

        Needs modelling, could be a good topic for a thesis.

        1. ChrisRUEcon

          > I don’t think we disagree, except about the meaning of ‘currency’. I use it to mean money that circulates freely, that anyone can hold or spend.

          Ahhhh … then that is correct … when I say currency, I am really coming from the #MMT perspective of the currency being first and foremost a unit of account. In other words, the community using my version of such a currency, decides what goods can be denominated in the community unit of account for the purposes of international trade. So from my perspective it’s not a currency that anyone can hold or spend.

          > Needs modelling, could be a good topic for a thesis.

          … and that’s the plan.

          Thanks for your response!

    2. ChrisRUEcon

      > BRICS doesn’t (it seems to me) need a ‘reserve currency’ or even a currency.

      Concur with the first part, but not with the second. My belief is that a simple transnational community currency would suffice. As most (if not all) community currencies are, it should be non-convertible. That is to say, there is no exchange of state-to-community currency for any nation. The allocation of the community currency is probably the most interesting part and really depends of what can be denominated, and whether there is a center-periphery nature to the nations in “the community”. I have thought that an ideal (closed) system would see issuance come from the center to periphery nations using a (kind of) per capita formula to determine “how much”. The periphery could spend into the center of heavy goods, by virtue of which the center nations would now have community currency reserves to spend back to the periphery.

      I have made my 1st official inquiry into the inter-disciplinary Ph.D. at UMKC … I am going to (try to) do this unless someone tells me it’s bat-sh** crazy … in fact, even if someone does, I’m still going to try … LOL.

      I think any plan to create a new reserve currency is too difficult and fraught by exchange/control challenges. Why would you want to have reserves convertible and therefore sanctionable? Why does no one seem to realize that sometime the only way to win, is not to play the game. In this case, not playing means building a completely separate system for a non-convertible currency.

      1. ChrisRUEcon

        … aaaand apologies. I thought my moderated comment got eaten … so then reposted but did bad C&P to boot.


    3. Yves Smith Post author

      Sorry, I don’t buy this as far as national leaders and top officials are concerned. for “reserve currency” and “foreign currency reserves”. Countries outside the US know very well what a reserve currency is since they have been forced to deal in the dollar, as well as foreign currency reserves since those are found to be important in preventing/checking currency crises. So I don’t think your claim here is well founded.

  15. Dida

    I don’t know why I bother to comment after 12pm, because unfortunately for me, NC is a morning persons’ blog, but here you have it…

    In 2007 Nabiullina participated in Yale World Fellows program. In 2015, Euromoney magazine named her Central Bank Governor of the Year. In 2017, the British magazine The Banker chose Nabiullina as “Central Banker of the Year, Europe”. In 2018, the International Monetary Fund invited her to give its prestigious annual Michel Camdessus lecture…

    The West loved her and showered her with accolades (at least until the SMO when they started to vilify everything Russian), because she embodied the typical neoliberal central banker ideology, and used to run the economy to the benefit of finance and corporate overlords. However, in Russia there are powerful groups who oppose this vision, particularly since the looming war with NATO made obvious the need for economic mobilization and central planning.

    So I find the idea that Nabiullina should serve as arbiter of what the BRICS should do or not do rather quaint.

    1. Yves Smith Post author

      This is entirely ad hominem, a violation of site Policies. By your standards, Putin is also untrustworthy because he was a World Economic Forum Young Leader and would even take meetings with Karl Schwab (which from what I can tell happened at the 2017 SPIEF and perhaps more recently too).

      Nabiullina is also widely credited with the fact that Russia survived sanctions as well as it has. In particularly, she got Russian banks off foreign funding, which was the big reason Russia had it 1990s banking crisis. Everyone expected banks to fall over after the sanctions were imposed but they didn’t because it wan’t the same banking system.

      More generally, there’s every reason for a central banker to meet with other central bankers and engage in international forums. Not doing so cuts them off from important early information about changes in systems and policies of their major counterparts.

      Being a central banker is by nature a conservative activity, as in managing big systems and institutions in cautious manner with an emphasis on controls and robustness. As much as one can deplore Paul Volcker’s anti-labor monetary policies, he was very tough on bank regulation and extremely skeptical of bank “innovation” (he clearly saw it as mainly regulatory arbitrage and looting but didn’t use those terms).

      In other words, you seem to take umbrage at Nabiullina executing at her job.

  16. elkern

    As a significant producer of Gold (10% of world production 2022, second only to China (!), and Russia has largest Reserves), Russia would probably do just fine under a Gold Standard (explicit or implicit). And I view Putin as generally “conservative” in his views (church/social issues, etc), so I’m not surprised that he is pushing for something like a Gold Standard.

    OTOH, the disinflationary effect of a Gold Standard would be a disaster for many other countries. India – which doesn’t crack Wiki’s list of Top 17 producers – would be hit hard, so Russia would have to just burn that big pile of Rupees. This may contribute to Nabiullina’s attempt to downplay a Gold-backed Bric-Buck.

  17. AEL

    There may be a political mechanism that could work around many of the above issues.

    Choose a small country that lives by trade. It will have a functioning legal system and banks, etc.
    (If it didn’t, it wouldn’t live by trade). Enmesh it in appropriate political treaties within BRICS.
    “buy” into the country with sufficient assets to make their bonds valuable.

    Since the GDPs of everyone else outweigh it, it will be greatly motivated not to “defect”.

    Then use that small countries currency as the new reserve currency.

    Would Singapore want to join BRICS? Maybe Hong Kong could gain a bit of independence (by being dependent on the rest of the BRICS).

    1. Yves Smith Post author

      This is all “assume a can opener”.

      Why would a small country that survives by trade have a well functioning legal system? It would almost certainly be required to do business on the terms of its larger trade partners, as in accepting US, UK , or EU law and the jurisdiction of those courts. We described at length during the Cyprus banking crisis that it was used for inbound investment into Russia, and even by Russians to invest in Russia, because it used UK law.. Meaning not just multiantionals but even Russians didn’t trust the treatment they might bet in a Russian court.

      And even if a legal system operates equitably for locals, no one foreign with an operating brain cell would trust that ex ample evidence. It becomes circular because foreign investors won’t want to try their luck unless they absolutely have to, so there won’t be enough of a track record.

  18. Wukchumni

    Second, the idea that the provide for “soundness” is also exaggerated, since countries cheated all the time on the gold standard by repegging the value of their currency in gold terms.

    I’ve never heard of such a thing happening-this supposed cheating, and seeing as gold was valued from $16 to $20 an ounce over the last 500 years until 1933, where would the opportunity be under the auspices of sound money?

    I’d like an example…

    1. Yves Smith Post author

      Lordie. Where were you when the gold standard broke down entirely in WWI? And there was no gold standard prior to the 19th century. There was also no “dollar” in much of the US, there was proliferation of local bank currencies. So your entire comment is very much uninformed.

      Before the American Revolution, economic historian Howard Bodenhorn explains, Britain didn’t send enough small-denomination copper and silver coins to the colonies to meet local needs. So colonial loan offices and land banks issued bills of credit for under 20 shillings. Minting of coins remained limited well into the nineteenth century, and local commercial banks picked up the slack. They took in gold and gave out bank notes in return, including some in very small denominations.

      So since banks issued their own currencies and many went bust, there is in fact NO evidence of a stable value of your mythical US dollar, since there was no US dollar until 1863, confirmed by:

      he National Banking Era Begins, 1863
      The National Banking Acts of 1863 and 1864

      The National Banking era was ushered in by the passage of the National Currency (later renamed the National Banking) Acts of 1863 and 1864. The Acts marked a decisive change in the monetary system, confirmed a quarter-century-old trend in bank chartering arrangements, and also played a role in financing the Civil War.

      Provision of a Uniform National Currency

      As its original title suggests, one of the main objectives of the legislation was to provide a uniform national currency. Prior to the establishment of the national banking system, the national currency supply consisted of a confusing patchwork of bank notes issued under a variety of rules by banks chartered under different state laws. Notes of sound banks circulated side-by-side with notes of banks in financial trouble, as well as those of banks that had failed (not to mention forgeries). In fact, bank notes frequently traded at a discount, so that a one-dollar note of a smaller, less well-known bank (or, for that matter, of a bank at some distance) would likely have been valued at less than one dollar by someone receiving it in a transaction. The confusion was such as to lead to the publication of magazines that specialized in printing pictures, descriptions, and prices of various bank notes, along with information on whether or not the issuing bank was still in existence.

      See additionally:

      You can just “revalue gold.”If there is a litmus test that divides Those That Get It and Those That Don’t, it is the notion that a return to a gold standard requires some kind of “revaluation” of gold, typically at a price five to twenty times higher than the prevailing price. It was popularized by Murray Rothbard in the 1960s, who really should have known better. But the whole point of using gold as a standard of value, the “monetary Polaris,” is that its value is reliably stable. You can’t “revalue it.” No government ever has. What you can do, however, is revalue a currency. For example, if the “gold price” is $1000/oz. one day, and then “revalued” at $5000/oz. some other day, the value of the dollar vs. gold has fallen by a factor of five. This is called a “devaluation of the dollar.” These arguments amount to nothing much more than unnecessary and destructive currency devaluations. Countries have gone from floating fiat to a gold standard many, many times — virtually the entire world did this during the 1920s, after the floating currencies of World War I — and this process has never taken place.

      Goldbug fabrications are not welcome here and I will not accept further commentary unless it is up to site standards, as in supported by quotes and links from recognized sources. I don’t have time to waste debunking demonstrable misinformation.

  19. ewmayer

    “The reason the dollar was not perceived to be problematic as a currency to retain is the dollar has very deep investment markets, including of course Treasuries, and robust and well-settled laws and institutions so investors aren’t worried about, say, using a dollar depositary or clearing firm. Dollars can also be swapped readily into other currencies.”

    What about the risk of confiscation and/or de-SWIFT-ification by the U.S. and its minions? Sorry if I find the bit about the Western financial institutions respecting “well-settled laws” risible.

    1. Yves Smith Post author

      I suggest you talk to investors and find out how many would be comfortable with custody or dispute settlement in China with its capital controls or India or Brazil. The US is still the cleanest shirt in the dirty laundry.

      US law is well settled and reliable compared to that of other countries. As I pointed about above, large Russian corporations would make investments via Cyprus to get access to their more trustworthy UK-law courts than be subject to adjudicating contract disputes in Russia. The fact that the US abuses sanctions is a different matter than the routine treatment of investors in non-sanctioned countries.

  20. spud

    the dollar system has also created the free trade monster.

    barter, the brics should put up a old stye bulliten board for bric members, have ruppee’s, need this, the provider of this might need ruppee’s to buy what it needs, and has excess what ever the provider of this has that they want to sell.

    all countries should strive for food security. starve the dollar system out by only buying what you cannot barter or currency swap for, and only sell what you have to if barter and currency swaps are not available.

    sri lanka and iran just did this, barter tea leaves for oil.

  21. tegnost

    very interesting post and comments, thanks to all.
    I seems to me oblique to the greek situation in the sense that what is perceived to be the just scenario, which greece surely deserved, is akin to an alternate reserve currency, also justly deserved, but both run into essentially the physical realities of trade. I agree with anon far above who clarifies that it’s not that it can’t happen, but we’re (imo) nowhere near it now. It’s directional at this point.

  22. Jorge

    2 This sort of thing happens at private clubs, where members put down the wrong member number or the accounting staff misreads it and puts the charge on the wrong account.

    Heh! This almost happened to me. I checked the name on a stock account slip and discovered the clerk had got the last digit wrong. The amount was credited to “James ” instead of “Jorge “- the bank was clustering account numbers by alphabetical order of name.

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