by Mish Shedlock, Mish Talk:
Hello BRICs, talk is cheap. Do something. What’s stopping you?
Question of the Day
Brazil’s president, Luiz Inácio Lula da Silva, wonders: “Every night I ask myself why all countries are forced to do their trade backed by the dollar. Why can’t we do trade based on our own currencies? Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
TRUTH LIVES on at https://sgtreport.tv/
@MishGEA Thoughts? https://t.co/zl53mYznA8
— Rob McNealy (@RobMcNealy) April 13, 2023
This is more than a bit amusing. No one is forcing Brazil, Russia, India, and China (the BRICs) to do trade in dollars.
Countries Don’t Trade!
For starters, Countries Don’t Trade.
- Only individuals, separately and in voluntarily formed groups such as firms, create or take advantage of economies of scale, of scope, or of both in production; countries, as such, do not.
- Only individuals, separately or in voluntarily formed groups such as firms, spend, save, and invest; countries, as such, don’t.
- Only individuals experience income, wealth, or welfare gains and losses; countries as such experience nothing.
- Of course, we can – and do – talk, for example, about “America trading with China,” about “Germany having a comparative advantage in the brewing of beer,” about “India’s national income rising,” and about “Peru’s trade deficit falling.” But all this talk merely describes the largely unintended, aggregate results of countless choices and actions each made by a particular, flesh-and-blood person.
- And also, of course, governments do perform many of these activities – for example, spend. But no government is a country. Each government is merely a particular organization run by particular, flesh-and-blood persons according to a certain set of formal and informal rules.
Trade Example
- A Brazilian soybean producer sells soybeans to a merchant in China.
- A Brazilian scooter manufacturer buys Lithium batteries from a Chinese merchant.
- The soybean producer buys nothing from Chinese merchants.
- The Chinese battery producer buys nothing from Brazilian merchants.
Why would the Brazilian soybean producer want to hold yuan, especially given that the yuan doesn’t even float?
Why would the Chinese battery producer want to hold the Brazilian Real?
No one is forcing the soybean producer or the battery producer to do anything. By choice they prefer to trade in dollars, which by the way is instantly convertible to any currency the producers may wish to hedge in.
It is only at the government level, where for political reasons, the governments may wish to make agreements in other currencies.
