The BRICS nations of Brazil, Russia, India, China and South Africa, will score own-goals if they think they can use gold to back the planned BRICS currency, which is being designed to rival the US dollars. Here is an advantage of a gold-backed currency as advocates explain: “it provides more stability and certainty to its users and holders, as its value is determined by the market price of gold, which is relatively stable and predictable over time. A gold backed currency also reduces the risk of inflation or hyperinflation, as its supply cannot be increased arbitrarily by its issuer.”

I do not buy  that and this has been my position. In our modern global economy, using gold to back any currency in a free mercantilist economy (you are better by increasing export and trade) is an illusion. Using the US which has data on everything, the nation has about 8,133 metric tons in gold reserves which comes down to about $500 billion.  Simply, if you melt all the physical gold in America, it is not worth up to 25% of the value of Apple Inc. At a deeper level, markets have priced Apple more because it has more value! 

Globally (including the BRICs nations), in all forms and nature including bullions, jewelry, derivatives, private placements, stocks, etc, the value of gold is about $13 trillion. The world economy is about $105 trillion; there is no way gold in all forms will back that economic size, even for the BRICS countries, unless we move to the imperial age.

What that means is that gold cannot support the BRICS currency because of the asymmetrical imbalance where the GDP of China alone is larger than the value of known gold, in all forms, in the world. 

More so, if they adopt a single currency, the flexibility which comes to the independent central banks will go, since that currency will have a supranational apex bank for its governance.  That “ limits the flexibility and autonomy of its issuer to conduct monetary policy according to its economic needs and objectives. A gold backed currency cannot be adjusted in value through interest rate changes, quantitative easing, or exchange rate interventions.”

Russia will not like that because just last week, it used an interest rate hike to save its falling ruble. Under a BRICs currency, that interest rate tool would not be possible for Russia.

Good People, currency union is challenging when economies are heterogeneous in nature, and in BRICS, none seems similar, making welfare losses possible, and that is why BRICS currency will not happen in the near future. Rather, currency swaps will reign!

Ndubuisi Ekekwe served as a currency expert to the African Union Congress, helping on the impacts of a single currency. The ex-banker earned a doctorate in banking/finance with focus on global trade and currency.

India is a great country, but what if I tell you that Africa outperforms India when you examine absolute and intrinsic economic indicators. Do not get me wrong: India has one of the greatest diaspora models in the world which is simply amazing and truly enviable. But despite all that, India’s potentials remain latent, unlocked, just like Africa. So, as you share this plot (below), note the following:

The population of India is 1.4 billion.  The population of Africa is 1.3 billion. The GDP of India is $3.1 trillion.  The GDP of Africa is $3 trillion. Did you notice something? Africa and India are just in the same pot, underperforming, despite the perception that India has higher productivity or efficiency. Indeed, the economic efficiency difference between India and Africa is the type which exists between 12 and a dozen. Sure, Africa has more natural resources. But yet, India enjoys one border which has an efficiency factor against Africa.  (GDP of China is about $17.73 trillion, population is about 1.4 billion.)

As I have written many times, we must look into China, because China has the secret sauce to development. India has a literacy rate of about 78%. China has 99.8% which means every person above 15 years old can read and write in China! As you go deeper, you will see why China is supreme and totally uncorrelated with any other emerging economy. 

Then, the biggest difference. When Africans and Indians graduate in American top universities, they make US permanent homes; Chinese put about 5 years, and then move back to China, and tap unlimited government-created resources to challenge the companies they worked for in the United States. That is why you hardly see Chinese at top leadership positions in leading US tech companies even as you see them running companies which challenge those firms at the global level. Like Africa, India does not offer such pathways.

Sure, we must learn certain things from India. But India itself is learning more from China, and I think we can go straight and learn from China. China is doing the core things which transform economies. Of course India rocks, and is doing great; my point is to put things in perspective.

Why this post? The politicians are throwing technology, technology and technology in their campaigns in Nigeria. One gubernatorial aspirant  is all over the place with blockchain for agriculture. People, what African agriculture needs is electricity to power silos, storage systems, etc; water systems for irrigation; and accessible road networks. And of course the big one: security!

I am a techie and I am conscious to write that the buzz of tech does not solve fundamental problems without a policy framework or business model. You can have all the tech experts in the world, and yet underperform on national productivity. That vision is what makes technology deliver big time.

The Limits of Tech and Why African Politicians Must Architect Generation-Shaping Policies

Comment on Feed

Comment 1: “Then, the biggest difference. When Africans and Indians graduate in American top Universities, they make US permanent homes, Chinese put 5 years, and move back to China.”

This may be the true difference maker…I see a strong parallel between Quality education and Quality Economy…

Big question…Why do Chinese people return home after a short period and Indians/Africans stay back?

The true diaspora remittance should be beyond sending a couple of dollars for family welfare economics but remitting your knowledge base and presence into growing the economy…i also must add that I am not excluding the responsibility of government to make the environment conducive for such exploration.

There is great hope for Africa and it lies greatly in our enhanced Human capital.