From BRICS, Global Tax to GenAI and much more
While we explore the impact of BRICS, the global tax promises $220bn more revenue across the world. The war between media houses and GenAI companies are on. Finally, how did the dinosaurs vanish?
Can BRICS really usurp the global financial system?
BRICS nations have consistently advocated for an enhanced role in the global financial system. The 11th Brazil Summit in November 2019 expressed BRICS leaders' disappointment with the 15th General Review of IMF quotas, which fell short of increasing BRICS' total voting power.
James O’Neill's proposal to transform the G7 into the G9, including BRICS nations, faced resistance, leading to the establishment of the G20. However, despite G20's establishment, the influence on international financial architecture remains questionable without G7 approval.
The BRICS nations support cooperation in developing bond markets in BRICS national currencies to bolster financial security amid global financial uncertainties. Emphasizing the need for robust correspondent banking networks and settlements in local currencies among BRICS nations.
BRICS-11 accounts for a significant share in global production and consumption across various sectors, yet faces challenges in currency influence. Presently, the BRICS-11 collectively holds significant sway in various global sectors, contributing to:
44% of worldwide oil production and consumption
36% of gas production and consumption
70% of steel production
65% of steel consumption
44% of fertilizer production
46% of fertilizer consumption
57% of food production and consumption
48% of automobile production.
The U.S. dollar still dominates global currency markets, impacting international trade, securities, and foreign exchange reserves. The majority of FOREX transactions involve the U.S. dollar, highlighting its continued dominance in global financial markets.
In April 2022, the daily turnover in the Foreign Exchange (FOREX) market surpassed USD 7.5 trillion, with the U.S. dollar maintaining a dominant position, constituting 88% of foreign exchange trading.
In contrast, the combined share of currencies from the BRICS-11 nations amounted to only 9%.
Geographically, the trading landscape was heavily concentrated, with the UK and the U.S. jointly accounting for 57.6% of transactions, while the BRICS-11 nations represented a modest 3.2%.
Furthermore, over 70% of all global FOREX transactions were facilitated through the U.S.-controlled Continuous Linked Settlement (CLS) system. This underscores the substantial influence exerted by the U.S. in the international currency markets, particularly through the predominant role of the U.S. dollar and key infrastructure like CLS in facilitating cross-border transactions.
China's banking assets surpass the U.S. and the UK, but its international credit market share remains relatively low.
As of Q2 2022, China's total banking assets reached USD 61.7 trillion, surpassing those of the U.S. (USD 22.8 trillion) by nearly three times and outpacing the UK (USD 12.4 trillion) by a factor of five.
Despite China's substantial banking assets, its share in international bank loans was comparatively lower at 4.3%. In contrast, the UK held a significant 15% share, and the U.S. accounted for 9% of international bank loans.
The UK's prominent role in the international credit market is attributed to London's status as a global hub for foreign banks.
Despite China's impressive banking asset size, its influence in international bank loans remains relatively modest, emphasizing the unique position of the UK in facilitating global financial transactions and credit activities.
The RMB's share in internationally-traded debt securities is minimal, with the U.S. dollar maintaining a substantial presence.
As of Q4 2022, the utilization of the Chinese Renminbi (RMB) in denominating internationally-traded debt securities remain notably limited, accounting for only 0.7% of the total.
In stark contrast, the U.S. dollar continues to dominate in this arena, comprising a substantial 65.5% share.
Despite the relatively low usage of RMB in debt securities, China maintains its position as the second-largest overseas investor in U.S. government bonds, trailing only Japan.
It's worth noting, however, that there has been a contraction in China's portfolio of U.S. government bonds, decreasing from USD 1,121 billion in March 2019 to USD 859 billion in January 2023. This dynamic reflects shifts in China's investment strategies and the evolving landscape of international financial holdings.
The BRICS-11 represents a notable portion of global exports (22% of total global exports), yet international trade settlements primarily occur in G7 currencies through SWIFT.
U.S.-controlled payment systems, like CHIPS, handle a significant volume of cross-border dollar payments, surpassing other global systems.
The role of BRICS in the global economy is currently confined to strategic raw materials, manufacturing, and providing cheap labor.
The current state of the global financial system indicates a continued reliance on a coalition of developed nations, with the United States leading this consortium.
To achieve independence from Western-controlled payment infrastructure, BRICS nations must establish a system of multilateral settlements in national currencies. Overcoming imbalances and eliminating the G7's financial monopoly is crucial for BRICS to strengthen their competitive position globally.
$220 billion might be the impact of the Global minimum tax on multinationals
Approximately three years after an agreement involving 140 countries to address significant gaps in the international tax framework, certain major economies are set to implement a minimum effective tax rate of at least 15 percent on corporate profits starting in January.
The agreement, overseen by the OECD in 2021, consists of two "pillars" – the first aimed at ensuring that multinational companies contribute more in taxes where they conduct business, and the second establishing a global minimum corporate tax rate.
Through a set of interconnected regulations, if a multinational's profits are taxed below this stipulated rate in one country, other nations can impose an additional levy. The OECD, instrumental in driving these reforms, estimates that this approach could boost annual tax revenue worldwide by up to 9 percent, amounting to $220 billion.
The adopted rules create an incentive for other nations to follow suit, as participating countries have the authority to collect taxes if the global rate is not adopted.
Preliminary assessments indicate that countries hosting substantial low-taxed corporate profits will initially benefit from these measures.
The Organisation for Economic Co-operation and Development (OECD) affirmed last year that calculations for the global minimum tax would offer more favorable treatment for specific tax credits, particularly transferable credits outlined in the US's Inflation Reduction Act.
Negotiations also led to the inclusion of exemptions, such as a provision for "substance," aimed at ensuring that the regulations do not deter investments in tangible assets like manufacturing facilities and machinery.
However, this provision has faced criticism due to concerns that it might enable companies to pay taxes below the 15 percent rate if they engage in sufficient real activity in low-tax jurisdictions.
Starting from January 2024, the initial group of jurisdictions implementing the global minimum tax includes the European Union, the United Kingdom, Norway, Australia, South Korea, Japan, and Canada. Notably, countries traditionally considered havens for multinational corporations, such as Ireland, Luxembourg, the Netherlands, Switzerland, and Barbados (which previously had a corporate tax rate of 5.5 percent), are also participating.
These regulations will be applicable to multinational companies with an annual turnover exceeding €750 million.
It is worth mentioning that as of now, neither the United States nor China has enacted legislation to implement these changes, despite expressing support for the agreement in 2021.
The start of the war between media and tech companies focusing on Generative AI
The ongoing conflict between the technology and media sectors surrounding generative AI has escalated significantly. The recent legal action taken by The New York Times (NYT) against OpenAI and Microsoft hints at potential challenges in 2024.
A number of authors, journalists, and comedians have filed lawsuits alleging copyright infringement, contending that their work was utilized in training expansive language models.
Additionally, legal battles have unfolded between Getty Images and Stability AI over image library usage, and Anthropic faced litigation regarding song lyrics.
The NYT's lawsuit illustrates how it prompted OpenAI's ChatGPT and Microsoft's AI-powered Bing to generate extensive, verbatim quotes from its reporting.
OpenAI may argue that news publishers can easily prevent their content from being used for training large language models by blocking access. Many publishers, including the NYT, have taken this step in the current year.
On the other end of the spectrum, noteworthy agreements between the technology and media realms include AP permitting its archives for OpenAI's model training and Axel Springer, the owner of Politico, Die Welt, and Business Insider, establishing a broader deal with the same tech company recently.
Lawsuits related to generative AI draw parallels to early cases that laid the legal groundwork for search engines.
During that period, US courts deemed it "fair use" to index copyrighted content for the creation of transformative search services.
The courts also concluded that short text snippets and "thumbnail" images in search engines didn't substitute the original content, mitigating potential harm to media companies.
Generative AI holds the promise of opening up significant new markets for media content. The pivotal question, as always, revolves around how the benefits should be equitably distributed. Media companies aspire to derive value directly from the technology by training AI models on their archives and summarizing news content to enhance their services.
Atmospheric changes led to extinction of dinosaurs?
The demise of dinosaurs on Earth, often attributed to an asteroid impact, is undergoing reevaluation with emerging evidence challenging this long-held belief. A recent analysis by an international research team sheds light on the possibility that, prior to the asteroid strike, the planet faced severe challenges due to heightened sulfur levels in the atmosphere.
The study focused on the Deccan Traps in India, an extensive volcanic feature in West India, examining rocks to unveil crucial insights.
The findings indicate that volcanic sulfur emissions from the Deccan Traps might have triggered repeated, brief global temperature drops.
This suggests a scenario where sustained sulfur release significantly altered the global climate, causing temperature spikes of up to 10°C within 100,000 years preceding the impact of the Chicxulub meteor.
According to models, this climate instability could have posed considerable challenges for both plant and animal life, laying the groundwork for the eventual extinction event of the dinosaurs.
This alternative perspective urges a reconsideration of the factors contributing to the prehistoric mass extinction, highlighting the intricate interplay of volcanic activity and climatic shifts in shaping Earth's history.