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Nearly ten years ago a Goldman Sachs analyst cleverly came up with the BRIC acronym. It refers to the emerging economies of Brazil, Russia, India and China.
Slowly, that four letter word has crept in into everyday vocabulary. To the point where people with no interest in economics throw the BRIC word around at barbeques.
Since the financial crisis, or the great recession - depending on which hemisphere you're in - the BRIC word is now being used more than ever in conversation.
The Western world that once had global economic dominance is now looking to these countries for financial salvation. Which is funny, because not so long ago they would have just been a punch line to jokes.
However, will the BRICs really be able to pull the rest of the world out of the slump? Or is it just a load of hype, and the Western world will have to continue to wallow in its own financial incompetence?
During the crisis, China was busy taking care of its own interests, ensuring that the rags to riches economy continued to thrive.
And because of that, for a long time, Australian resources have done quite well from the Chinese governments' stimulus programs. But we haven't been the only ones to benefit...
In fact two Russian banks are still alive today, thanks to the Chinese government. Both VTB and VEB were about to collapse. Then some nice friendly Chinese government officials with wads of stimulus cash came along and bailed out each bank with about USD $500 million (AUD$555 million).
Now, rather than pay it back, China managed to secure about 70 billion cubic metres of natural gas per year for the Chinese people. No actual value has been released for this transaction, but it's widely speculated that rather than receive any money back for the loan, China now not only has an interest in two Russian banks, but it has a guaranteed supply of natural gas for an extended period of time.
And it doesn't end there. Russia's export industry has been badly hurt by recent economic events. That suits China, because they've suggested that they're likely to fund future ventures. Of course only ventures that offer an upside to China.
Brazil is another country that has done quite well out of China's printed money. Recently China agreed to invest USD$5 billion (AUD$5.55 billion) towards construction of a steel plant in Rio de Janeiro. In doing so, China has been able to secure steel for its own consumption.
Oh, and let's not forget about the US$10 billion (AUD$11.1 billion) loan from a private Chinese firm to a Brazilian company Petrobras, which recently discovered an offshore oil supply. How is Petrobras going to pay back the loan? It's simple really, Petrobras agreed to a guaranteed oil supply for China over the next decade.
Then there's the other agreement between India and Brazil about sugar cane. The Indian government has been very keen to switch to biofuels, but they have nowhere to grow the cane. Brazil has a massive amount of land suitable for this purpose and is more than happy to have some more money injected into their economy.
So what does this tell you?
The rest of the world might still think US dollars are worth something, but clearly China doesn't.
In fact China is pretty much, slowly converting their US cash holdings into something far more tangible and in all honesty, probably worth a hell of lot more long term - commodities.
While the other members that put the BRI in BRIC are probably grateful for the foreign investment to get their economies moving along, what they are really getting in exchange for their resources is potentially worthless greenbacks.
And what's worse news for these three countries is that they are losing their most precious resources only to be stuck with the dollars one of their biggest trading partners doesn't want.
But you have to admire the Chinese strategy behind this.
The commodities will only increases in value as supply shrinks and global demand rises. And the Chinese have made sure they've got access to what they need to keep their country going.
And better still, they get to clear all those depreciating dollars out of the vault before they become worthless.
Shae Smith
Assistant Editor
Money Morning
This article is contributed by Money Morning. Click Here to Subscribe to their free newsletter.
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