BRICS and the China Trap

Earlier this month the BRICS countries (Brazil, Russia, India, China, South Africa) agreed at their summit meeting in Sanya, China, to establish mutual lines of credit in local currencies. On the face of it, this is an innocuous effort by the world's fastest growing countries to strengthen their mutual relationship. However, in the context of the emerging global power relations, this is yet another important step in the Chinese initiative to end the reign of the dollar as the world's single reserve currency.

Two years ago I wrote about the Chinese campaign to dethrone the dollar. Shortly before the G20 London summit, China's central bank governor announced that the dollar should be replaced by SDRs. This was a shrewd approach. About half of China's foreign exchange reserves of $2 trillion are reportedly held as dollar denominated assets, as indeed are large chunks of the reserves of many central banks. This large exposure implies that any major depreciation of the dollar would severely erode the value of these assets. At the same time, large diversification of these reserves away from the dollar is not an option. Such a move itself would trigger a sharp depreciation of the dollar. But the exchange rate of SDR is a weighted average of a basket of convertible currencies, and a swap of dollars for SDRs at a pre-determined exchange rate would allow China, and other countries, to significantly reduce their dollar exposure without any erosion of the value of their reserves. Of course, it would also end the reign of the dollar.

At the time, most analysts dismissed the Chinese initiative as impractical and unworkable. However, China has taken several strategic steps to carry forward its agenda through alternative routes. It has established currency swap arrangements with several developing countries, which protects their trade with China against the risk of their currencies depreciating. The initial value of these arrangements was quite modest, less than $100 billion. However, during the past two years, the volume of these arrangements would have grown significantly and could eventually cover the entire trade of these countries with China. 


How should India prepare for such an outcome? India should embed itself in the currency arrangement being forged for the BRICS countries, and strive to join the embryonic Asian Monetary Fund to take full advantage of opportunities arising from these initiatives. At the same time it must remain mindful that North America and the EU will remain important trading partners in the foreseeable future.


Sudipto Mundle in The Times of India. More Here.

Simple measures to eliminate shortage of electricity in India

Electricity in India can be a dicey proposition. Half the population lacks access or is too poor to afford it. The other half is using so much that demand far outstrips supply, resulting in daily power outages. Businesses and factories rely on diesel or gasoline generators during the brownouts, creating additional pollution. And with a growing middle class buying more TVs, air conditioners and the like, the situation will only get worse.

As chaotic as things are, there is a solution: simple energy efficiency measures, according to a new report from Lawrence Berkeley National Laboratory (Berkeley Lab), can eliminate the electricity deficit as early as 2013. What’s more, doing so will add $505 billion to India’s gross domestic product (GDP) between 2009 and 2017 (compared to India’s total GDP of $911 billion in 2007-2008), as businesses that have had to cut back due to electricity shortages can restore production.

“None of these measures are retrofits; they are all new sales of items such as light bulbs and refrigerators. We tried to keep it as simple as we possibly could—no buildings, no transport,” said report co-author Jayant Sathaye, a Berkeley Lab senior scientist who leads the International Energy Studies Group in the Environmental Energy Technologies Division. “Air conditioners alone are growing at 25% per year in India. But because of this rapid growth, you can capture the new sales, sell only efficient products and make a difference.”

For the report, Sathaye and co-author Arjun Gupta, also of Berkeley Lab, assumed all new sales of some basic appliances would be of energy efficient models, including electric fans, TVs, air conditioners, motors, some industrial processes and water pumps for agriculture; they exclude retrofits of existing technologies. With these steps, they find that the rate of demand growth for electricity declines, allowing the supply to meet and eventually exceed the demand, thus preventing 65 million tons of carbon dioxide emissions by 2017. By 2020, the cumulative benefits increase to $608 billion added to the GDP and 333 million tons of CO₂ emissions avoided.

Although some investment would have to be made in energy efficient equipment, the amount is more than offset by the money saved by not building power plants that otherwise would have been needed.
The measures are feasible, Sathaye says, because in fact India has had energy efficiency programs in place in various sectors since at least 2001, when the government passed the Energy Conservation Act, which, among other things, created the Bureau of Energy Efficiency (BEE). “Most developing countries hadn’t done anything like that in 2001,” Sathaye said. “It’s very unique. Neither the U.S. nor China have a bureau dedicated to energy efficiency.”

From a report in Berkeley lab news centre More Here and Here