Russia, China, India Unveil New Gold Trading Network

Submitted by Ronan Manly, BullionStar.com

One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.

In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.

Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.

Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.

Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.

Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.

BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.

At the time Shvetsov, as reported by TASS in Russian, and translated here, said:

“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”

Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.

The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.

Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia

National Security and Financial Terrorism

At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.

And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.

Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:

“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”

As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.

1800 Tonnes and Counting

From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.

Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have  embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.

According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.

With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.

The Bank of Russia now has 1801 tonnes of gold in its official reserves

A threat to the London Gold Market

The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.

Currently the international gold price is established (discovered) by a combination of the London Over-the-Counter (OTC) gold market trading and US-centric COMEX gold futures exchange.

However, ‘gold’ trading in London and on COMEX is really trading of  very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.

While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.

Conclusion

It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.

The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.

When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.

*  *  *

This article originally appeared on the BullionStar.com website under the same title "Russia, China and BRICS: A New Gold Trading Network".

Russia, China and BRICS: A New Gold Trading Network

Submitted by Ronan Manly, BullionStar.com

One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.

In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.

Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.

Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.

Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.

Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.

BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.

At the time Shvetsov, as reported by TASS in Russian, and translated here, said:

“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”

Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.

The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.

Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia

National Security and Financial Terrorism

At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.

And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.

Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:

“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”

As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.

1800 Tonnes and Counting

From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.

Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have  embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.

According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.

With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.

The Bank of Russia now has 1801 tonnes of gold in its official reserves

A threat to the London Gold Market

The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.

Currently the international gold price is established (discovered) by a combination of the London Over-the-Counter (OTC) gold market trading and US-centric COMEX gold futures exchange.

However, ‘gold’ trading in London and on COMEX is really trading of  very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.

While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.

Conclusion

It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.

The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.

When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.

This article originally appeared on the BullionStar.com website under the same title "Russia, China and BRICS: A New Gold Trading Network".

Venezuela Begins Publishing Oil Basket Price In Yuan

Two days after the WSJ confirmed Maduro"s earlier threat that he would stop accepting US Dollars as payment for crude oil imports, Venezuela has done just that.

As a reminder, and as we reported previously, in an effort to circumvent U.S. sanctions, Venezuela told oil traders that it will no longer receive or send payments in dollars. As a result, oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

Furthermore, Venezuela"s state oil company Petróleos de Venezuela SA, or PdVSA (whose bankruptcy is fast approaching), told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner. The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, "To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar."

Fast forward to today, when according to a statement on the Venezuela oil ministry, the country"s weekly crude oil and petroleum basket "will be published in Chinese Yuan" - oddly, not in Euros as the WSJ hinted - going forward. We can only assume that Venezuela avoided the European currency on concerns that Brussels may follow in D.C."s footsteps and impose financial sanctions on the Maduro regime next. Which meant that the only "safe" currency to transact in, was that of the country"s two big sources of vendor (and commodity) financing: China and Russia. For now Venezuela has picked the former.

The ministry also unveiled a price of 306.26 Yuan per barrel for the week of Sept. 11-15, up 1.8% from the 300.91 in the previous week, saying "the more favorable outlook on world oil demand and reports of lower global production contributed to the strengthening of crude oil prices this week."

As for the more relevant topic, Venezuela"s abdication of the US dollar, whether permanent or temporary - until the US finds a way to intervene and restore normalcy - Nomura debt analyst Siobhan Morden warned that "you can say whatever you want for your domestic propaganda and make it look like you’re retaliating against the U.S.... this political posturing will only be to their detriment.”

It remains to be seen if president Trump will use today"s official switch by Venezuela to a PetroYuan as justification for a more "aggressive" foreign policy posture.

* * *

Meanwhile, recall that the decision by the nation with the world"s largest proven oil reserves to eliminate the dollar, comes just days after China and Russia unveiled the latest Oil/Yuan/Gold triad at the latest BRICS conference.

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar. Clearly, Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold.

This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

To promote their strategic partnership, Russia and China  – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now. Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).

Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.

Sections of the War Party in Washington bent on instrumentalizing  India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.

*  *  *

Finally, having threatened China just this week with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly the US war machine). So will calls for a Venezuelan invasion now commence, if for no other reason than to teach any other nation contemplating a similar move that it will simply not be allowed?

Modi's Demonetization Called "Colossal Failure That Ruined Economy" As India GDP Growth Slumps To 2-Year Lows

India"s embattled Prime Minister Narendra Modi faced a double whammy of abuse this week as his nation"s economic growth collapsed to its weakest since Q1 2014 and India"s Central Bank released a report on Modi"s extraordinary "demonitization" plan last year showing that 99 per cent of the high denomination banknotes cancelled last year were deposited or exchanged for new currency, crushing Modi"s lie that his contentious "war on cash" would wipe out huge amounts of so-called "black money".

When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals — popularly believed to hoard large amounts of illicit cash — would be stuck with “worthless pieces of paper”. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy - as the wealthy abandoned or destroyed it, rather than admit to their hoardings - reducing central bank liabilities and creating a government windfall.

Since he unleashed his cunning plan, India"s GDP growth has slowed dramatically.

After India"s Composite PMI collapsed, India"s Q2 GDP growth slowed to 5.7% - its weakest since Q2 2014...

And now, as The FT reports, the Reserve Bank of India’s annual report on Wednesday suggested that most holders of the old currency managed to dispose of it, estimating that banned notes worth Rs15.28tn ($239bn) were returned to the bank. That amounts to 99 per cent of the Rs15.44tn of the old high-value notes that were in circulation when Mr Modi made his announcement, according to the finance ministry.

The government’s critics were quick to seize on the RBI’s announcement as evidence of the policy’s failure.

“99 per cent notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?” former finance minister P Chidambaram tweeted.

Rahul Gandhi, de facto leader of the opposition Congress party, tweeted: “A colossal failure which cost innocent lives and ruined the economy. Will the PM own up?”

The bank’s figures are a political embarrassment to Mr Modi, who had appealed to the nation to endure the disruption and hardship to punish the rich and corrupt, and deprive them of their ill-gotten gains.

Many lower income Indians hard hit hard by cash shortages supported the demonetisation policy because they believed the rich were suffering more.

It appears they were suckered!

Billions Of Lives At Stake As China Threatens India With War After "Blatant Sovereignty Infringement"

Authored by Mac Slavo via SHTFplan.com,

It could be argued that there’s never been a time in history, where so many Americans thought that we were on the brink of another major war. If you pay attention to the constant news stream of stories regarding Syria, North Korea, or Russia, you’d be hard pressed to deny it. In fact, a recent poll found that 76% of Americans are worried that another war will break out in the next 4 years, and 80% were afraid that we could be embroiled in a conflict with North Korea in the near future.

There’s no doubt that Americans are fraught with fear over the thought that a new war is on the horizon, especially if that war could lead to another global conflict. But most Americans forget that the world doesn’t revolve around them. They worry a lot about their nation engaging in another world war, but they forget that there are several powerful nations that could spark a global conflagration without America’s input.

Among them are China and India, who have been engaged in a border dispute for decades. That dispute has flared up once again, as China hurls threats of war with India.

The ruling Communist Party of China has issued a stern warning to neighboring India, with which it is engaged in a bitter border dispute that has recently seen Chinese live-fire drills and media speculation of extensive Indian military casualties denied by both sides.

 

After accusing Indian troops of crossing over the disputed Sikkim border last month, Chinese Communist Party outlet Global Times published a commentary Tuesday urging restraint by both belligerents, but warning that China was prepared to engage India in a battle for the contested land. The piece chalked up the conflict to a greater competition for economic and political dominance between the two leading Asian powers and said that Beijing would amass troops and armaments at the border in anticipation for what could turn into an all-out war.

This isn’t the first time that these two nations have been at each other’s throats over their borders. In 1962 their armies clashed, leading to defeat of the Indian army, and thousands of casualties on both sides. Based on the rhetoric coming out of Beijing’s state sponsored media, it appears that China is willing to replicate that conflict. From the Global Times’ op-ed.

On June 16, Indian border guards crossed over the Sikkim section of the China-India border to the Chinese side, triggering a face-off with Chinese troops. India"s action this time is a blatant infringement on China"s sovereignty.  

 

As the confrontation goes on, China needs to get ready for the face-off becoming a long-term situation and at the same time, needs to maintain a sense of rationality. Within China, there are voices calling for the Indian troops to be expelled immediately to safeguard the country"s sovereignty, while Indian public opinion is clamoring for war with China. However, the two sides need to exercise restraint and avoid the current conflict spiraling out of control.

 

“China doesn’t recognize the land under the actual control of India is Indian territory. Bilateral border negotiations are still ongoing, but the atmosphere for negotiations has been poisoned by India,”

 

“China doesn’t advocate and tries hard to avoid a military clash with India, but China doesn’t fear going to war to safeguard sovereignty either, and will make itself ready for a long-term confrontation.”

Of course, if war did break out again between China and India, there would be one significant differences from the Sino-Indian war of 1962. This time around, both nations would have hundreds of nuclear weapons. And it’s possible that Pakistan, another nuclear armed nation that India has fought border disputes with in the past, could also be swept into the conflict. It should go without saying that billions of lives are at stake every time these nations hurl threats of war at each other.

Americans often worry about various geopolitical hotspots that could drag our nation into a world war. But they shouldn’t forget that there are plenty of places where another global war could start without our country ever lifting a finger. The whole planet is a powder keg.

Emerging Markets Are Not All Created Equal

For most investors, targeting foreign countries where there are high expectations for growth is a useful strategy.

After all, in the United States, Canada, and Europe, economies are mostly growing at about 2% or less per year. And while these developed markets are less risky to invest in, finding value can be tricky.

That’s why, as VisualCapitalist"s Jeff Desjardoins notes, for many decades, investors have been allured by the fast growth of far-off economies. In the 1950s and 1960s, Japan’s economy regularly expanded at a 10%+ clip, and who can forget the “Four Asian Tigers” that followed in Japan’s footsteps? In the 2000s, the focus shifted to the BRICS (Brazil, Russia, India, China, South Africa) – and more recently, attention has been on countries like Indonesia, Nigeria, Colombia, and Turkey.

DIFFERENT RISKS IN EMERGING MARKETS

Although emerging markets are similar in that they have high expectations for growth, it’s important to remember that these countries have very unique and different sets of risks.

Today’s visualization comes to us from Charles Schwab, and it provides a simple breakdown of the types of risks faced by the economies of emerging markets:

As an example, Mexico and Chile have considerably different risks, according to the chart.

Aside from currency risk, which they both share, Chile is particularly prone to sensitivity in the world’s commodity markets. That makes sense, because Chile is the world’s largest supplier of copper – and close to 50% of the country’s exports are copper-related, including refined copper (22.6%), copper ore (20.9%), raw copper (3.6%), and copper wire (0.5%).

On the other hand, Mexico is noted as having particular sensitivity to what happens in developed markets such as the United States. This is because 81% of Mexican exports go to the U.S., while the next biggest buyer of Mexican goods is Canada at 3% of exports. If the buying power of the U.S. and Canada is affected, it could have big consequences on what will be bought from Mexico.

Why India's Attempt To Digital Will Fail

Authored by Jayant Bhandari via Acting-Man.com,

India Reverts to its Irrational, Tribal Normal (Part XIII)

Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line.

The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu fanatic is made the next President. India is rapidly entering a new phase.

Indian Prime Minister, Narendra Modi on the cover of an Indian magazine in 2002, when he was the Chief Minister of the Indian province of Gujarat. During his reign in Gujarat, a civil-war like situation erupted, which seriously segregated the province’s society. It brought Hindus into a state of trance and excitement and provided them with the fake-security of the collective. Alas, wealth and civilization are created by an intense focus on value-addition, not from the short-term escapist excitement of mobs expressed through riots and rape. Destructive endeavors are a major vulnerability of poor societies, given their irrationality and lack of foresight and planning, and their short-sighted focus on high time-preference, pleasure-centered activities.

Modi, a major world-traveler, who has run around quite a bit to please foreign governments and win the support of identity-lacking non-resident Indians, is no longer going abroad with the same abandon. Historically and even today, whatever gained approval in the West is what Indians have looked up to.

But Modi has matured. Modi has directed the attention of Indians to nationalism, Hindutava (fanatic Hinduism), the army, the flag, the anthem, and other superficial collective “causes” not underpinned any values or wealth-creating, civilization-producing objectives. Behind this is an empty arrogance pumped up by having grown relatively richer (still with GDP at a mere $1,718 per capita) over the last several decades due of the free gift of western technology.

If all this reminds you of the early days of the Arab Spring, you are right on track  with respect to understanding what is happening in India.  India is an extremely irrational, superstitious and tribal society, which I have discussed in great detail in earlier articles, the last one of which is linked here.

War of Attrition

Modi has infused so-called educated Indians with a sense of confidence and identity. It does not matter that this is all fake. To a man with a tribal, irrational mind incapable of thinking about tomorrow, throwing furniture onto the bonfire is not a problem, for today’s excitement is all that matters. Lacking empathy and compassion — another tribal “quality” — he pays no heed to the suffering of his fellow man.

It seems possible that Modi is focused on the wrong statistics [PT]

In the deeply irrational society of India, the institutions of liberty that the British  left behind were slowly but surely hollowed out. That had to happen, as the glue and the foundations of reason needed to sustain these institutions do not exist in Indian society. The tribal instincts of Indians are diametrically opposed to the concept of liberty. The concept of free speech, a remnant of the intellectual climate fostered by the British, survives for a small fraction of society – but even that is receding rapidly.

Compared to what happened elsewhere in South Asia, the Middle East and Africa, India was — on a relative basis — a beneficiary of its ethnic diversity. This diversity ensured that a collective approach to destroying institutions of liberty and the rule of law worked only slowly, due to infighting.

Isn’t it racist to call Indians irrational? Political correctness has indeed made people come to believe that we are all blank slates, which merely need to be reprogrammed through training. The reality has been quite different, as our everyday experience in this globalized world shows. Cultures are so resilient that even after people from these poor societies have migrated to the West, they not only fail to assimilate but more importantly, often regress.

Modi’s focus is on centralizing Indian society, increase the State’s control over the individual, increase taxes and compliance, and force people’s attention on collective goals. The tribal instincts of Indians are finally getting the upper hand, as the institutions left by the British come to the end of their lives. India’s chaos means that its totalitarianism will not be like that of Nazi Germany, but similar to that of Zimbabwe.

Modi’s totalitarian agenda also finds support among the IMF, the World Bank and the similar globalist institutions, which appear to be rather simplistic in their thinking. There is a strong belief among these institutions — as they lack understanding of the differences between cultures — that what works in the West must also work in India and other wretched societies.

That may have been possible as long as the British ran India. Without them, fragmentation of the unnatural nation-state of India, or at least aggressive decentralization is the only practical option.

In India where an organization of two people has one person too many, the forced centralization that Modi is undertaking is bound to lead to massive chaos, civil war, turmoil, and the eventual disintegration of India into its tribal constituents. India has chosen a painful path to revert to its tribal normal.

Colonization by the British was the best thing that happened to what came to be known as India. Without the sanity provided by British supervision or the institutions left by them, Indian tribes will forever be engaged in a war of attrition against each other.

Yogi Adityanath, a Hindu fanatic and the new Chief Minister of Uttar Pradesh, the most populous province of India, distributing goodies, while security personnel restrain citizens from throwing themselves at his feet – a favor citizens gratefully bestow, and those in any kind of power expect. Does anyone really think India is “independent” or “democratic”?

Will digital technology alleviate their pain and drudgery? Or will it actually make it worse? (Photo credit: P. Sainath, whose work exposes the suffering of the otherwise invisible poor people of India)

Dysfunctional Organizations Have Become Worse

On 8th November 2016, Modi declared 86% of the monetary value of India’s outstanding currency illegal. Even today, ATMs remain cashless. The banks are clogged with throngs of people. Small businesses — the backbone of India’s economy — keep failing, because people continue to avoid discretionary spending.

People have suffered economically as the smooth flow of the economy was disrupted, and transaction costs for businesses have increased. Food prices have recovered a bit recently, but are still at about half their previous levels. Unfortunately, this is not because production has increased, but because demand has collapsed, with many of the poorest people likely unable to buy food.

A sign adorning the entrances of banks in India with depressing regularity.

Photo credit: Ajay Verma / Reuters

India is one of the countries with the highest traffic-related deaths in the world. This happens despite its slow-moving traffic. India has been an utter failure in providing basic government services. Ambulances are often not available at all, or if they exist they are used for the private purposes of those in authority.

In the rare cases when they do arrive, it takes them forever and even then they almost never have paramedics. They often refuse to take the injured to a hospital unless a close relative goes along. The hospitals are either ill-equipped or disinterested in taking such patients if they are not accompanied by a relative.

If one is incapacitated in an accident for any reason, the chances of getting emergency aid are extremely low. One is quite likely to simply die on the roadside. The situation is similar with the police and other emergency service providers.

The Indian government completely fails at its most important job.  Indians simply do not have the capacity (given their irrationality) to build and maintain such basic organizations. This happens even when they spend massive amounts in order to maintain such organizations.

India has almost never undertaken a big project and completed it. None of this has discouraged the dreamer Modi. The demonetization effort, in which the government  merely had to replace old notes with new ones, has been an utter failure. It is an ongoing pain which has left the economy in shambles, despite the rosy growth figures reported by the government.

Asian bureaucracies compared: a score of 10 is the worst possible (it means your country is drowning in red tape and corruption). India has a score of 9.21 – making it a world leader in red tape. [PT]

The Realities of Going Digital in India

Over a billion people in India have no access to internet. When it is available, it is often very slow. Electricity is unreliable. Bank websites are extremely unwieldy. To make an online transaction, the login process is usually very complicated, often requiring several steps and verification codes sent as text messages.

More than a month ago, I paid online for a flight ticket from Delhi to London. The money left my account, but I never got the ticket. It was virtually impossible to get in touch with the Indian company I had bought the ticket from. When I did finally manage to contact them, they told me that they had refunded the money. The bank says it never got the refund. Of course, I have had to personally visit the bank every time and spend a long time waiting to talk to someone. In this electronic day and age, more than a month after the event, no-one knows where my money is.

It is hard to pinpoint who deserves the blame. Indians are extremely unskilled, uneducated (despite paper certificates aiming to prove otherwise), and lack work ethics. They almost never have passion for their jobs or an interest in providing  good services to their clients. This is the main feature characterizing many Indian companies. Management and owners lack professionalism and are singularly focused  on the bottom-line, by hook or by crook, eschewing true value-addition.

And then a discovery was made amid the rubble and the ruins – let’s focus on that… [PT]

I know many people who refuse to use an ATM card. People refuse to make credit or debit card transactions, as they cannot trust the system. Many years ago my Indian credit card company refused to reverse an unauthorized charge. When I asked them to cancel my card, they upgraded my card and imposed a yearly fee. I had no choice but to stop making payments to end a never-ending cycle of problems.

Given the risks involved, many people simply walk down to the bank branch to make an online transaction, which obviously defeats the whole purpose of going digital. When Indians buy something online, they tend to use the “cash on delivery” option, a unique option for buyers in India, where people have no work ethics or trust in each other.

Both the lack of trust and the lack of digital infrastructure are reflected by the fact that 98% of all consumer transactions in India are carried out in cash. Yes, banning most outstanding cash currency was probably a tad disruptive… [PT] – click to enlarge.

Virtually anyone one meets in India is perplexed about the charges banks impose on accounts these days. There are non-agreed fees and commissions that appear regularly, and on top of those, service taxes are charged. There are tens of charges which no one knows the reason for or is able to explain.

Bank employees favor you with a blank stare when you ask them for an explanation. Even Modi fans finds themselves boiling in anger when their bank statements arrive.

India’s attempt to go cashless will fail. India’s e-commerce companies will fail. The skills and ethics required to run big organizations simply do not exist in India. In the meantime, the forceful imposition of cashless transactions will only succeed in imposing massive costs on society.

Other Forced Digitalization Will Fail

There has been much talk about the newly imposed national ID system, Aadhaar, and the GST system that is expected to be rolled out in a few months.

Errors are an all too common feature of digital India. Aadhaar is used for purposes it was allegedly not intended for.

Aadhaar will fortunately not lead to a Nazi-style police state. India is too chaotic and undisciplined for that. India will be a Zimbabwe-style police state. The stated purpose of Aadhaar was to provide assistance to the poorest people in  society. You often see them sitting outside bank branches, begging to get the equivalent of a few dollars that are due to them, for the money often isn’t in their accounts or simply untraceable.

Mistakes and disappeared money that should be highly unlikely happen all the time in India, as the kind reader by now surely understands, given India’s cultural underpinnings.  Data breaches and leakages from the Aadhaar system are becoming everyday news.

Even in a perfect system, which is anyway not possible, Indians will still engage in data breaches for bribes, etc., as they simply do not have respect for their own professions or pride in what they do.  Despite the fact that it is unconstitutional, India’s government is making Aadhaar compulsory for filing tax returns, using government services, salary payments, etc.

A rather perceptive cartoon about the Aadhaar card. In the meantime India’s Supreme Court has ruled that Aadhaar cannot be made mandatory. The government seems set on ignoring this ruling and is pressing ahead with the scheme anyway. [PT]

India’s much talked about GST system is to roll out in July. GST will impose a massive need to create audit trails. The simple movement of a good by a transporter to someone’s house will require an electronic document to be produced. Couriers who have so far not had any involvement in this process will be entrapped. Similar e-way bills will have to be created as goods moves from  couriers to trucks or change hands in any other way.

These documents will have limited validity, so if a person has a possession of a good for more than a certain time while it is in transit, a new e-way bill will need to be created. Any movement of inventory within the same company will have to be documented and filed. Even very small companies will have to file three documents every month and another document every year.

No one knows for sure how GST will be implemented. I doubt that the government itself actually knows it — in fact, of course they don’t. It will definitely create a new wave of chaos and many aspects will likely need to be reversed.

India has a serious skills shortage. Indian companies can e.g. not find skilled accountants. Most will find the costs associated with implementing such a rigorous system far too high anyway. Increased demand for tax officers and accountants will reduce the pool of workers available for productive activities.

Anxiety is a Way of Life in India

India’s attempt to go digital will fail. Digital cash will fail. E-commerce companies will fail. In India, the national ID-card system, Aadhaar, will fail. The GST system will likely fail, or it will at least create massive problems in implementation. All these programs will impose huge costs on the economy and the well-being of entrepreneurs, including the wretched poor in the large informal economy.

India is looking for totalitarian solutions to deal with problems created by totalitarianism and tribalism. India is trying to use the the facade of the technologically advanced West hoping that the packaging will automatically deal with the lack of inner substance. Fail even with respect to superficial issues seems preordained

India’s government cannot provide basic services to its people. Ambulances are conspicuous by their absence. But Modi wants to move on to doing bigger things. In the last 70 years of independence, Indians have systemically destroyed the institutions of the rule of law that the British had bestowed on the country.

Cash is king in India, in every respect – click to enlarge.

There is a lot of pain and no gain facing India. If they had any sense they should be begging the British to return and rule the country. That is the only option apart from chaos, disintegration, and eventual never-ending tribal infighting among the fragments.