Photo: Reuben Whitehouse on Flickr
A comment by UBS strategist Geoffrey Yu suggests that rumours about BRICS buying European bonds have merit — at least on a mathematical basis.Yu argues that a coordinated bond-buying deal — if the logistics could be agreed upon — would not only “probably be welcomed by all sides involved” but “could settle the crisis once and for all.”
Bond-buying would help the BRICs to mitigate concerns about currency appreciation and would also stave off a global economic meltdown that would punish both emerging and developed markets. The U.S. could also play a role in this bond-buying.
Here’s his reasoning:
Despite committing to global rebalancing, it’s clear that EM reserve accumulation has continued apace over the last few quarters. The torrent of hot money inflows heading in their direction as a result of massive monetary stimulus within developed markets has forced local central banks to limit the pace of currency appreciation. Fears of currency wars breaking out so far have proven unfounded, but patience is wearing thin on both sides. Coordinated BRIC buying of Eurozone debt, however, would probably be welcome by all sides involved. The US is clearly concerned with the slow pace of re-balancing, the Eurozone debt crisis is a greater risk in the short term to global financial stability and economy. Treasury Secretary Geithner’s presence at this week’s European Finance Ministers’ gathering in Poland is the clearest indication yet of the US’ concern. Ultimately it’s those who can afford it which matter, and as far as the BRICs are concerned, the maths do add up.
Controversy about just how close Brazil, Russia, India, and China are to proposing such a scheme continues unabated.
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