THE US DOLLAR avoided what might have been a significant challenge last week. Yet the shifting balance of power in the global economy was still evident at a meeting that brought together heads of state from Brazil, Russia, India, and China.
The grouping - known as BRIC - took no action to diminish the role of the greenback as the world’s leading reserve currency, as Russian President Dmitry Medvedev had hinted it might. What’s noteworthy is that, had they chosen, these four high-growth economies could have worked credibly to undermine the dollar’s privileged position.
When Brazil’s President Luiz Inacio Lula da Silva, India’s Prime Minister Manmohan Singh, and China’s President Hu Jintao joined President Dmitry Medvedev in Yekaterinburg, Russia, they represented 42 percent of the world’s population and 15 percent of global GDP. By mid-century, their countries are expected to equal the economic output of America and Europe combined.
There is no secret about why their final communique made no mention of Medvedev’s threat to supplant the dollar. China, holding roughly $1 trillion in US government debt, would be hurting itself if it permitted BRIC to take a position that shook confidence in the dollar.
The BRIC nations were justified, however, in asking for “a greater voice and representation in international financial institutions.’’ If they are to contribute more to the International Monetary Fund and the World Bank, they must have more say in decision-making. As global economic clout shifts in coming decades to these and other rising powers, the surest way for America and its Western allies to avoid a destructive clash of interests will be to foster cooperation with the new creators of wealth.