For almost 80 years, the US dollar has reigned supreme as the world’s reserve currency.
And its dominance has gone mostly unchallenged.
But times are changing fast.
Now, the US dollar must defend its status, because….
The BRICS nations—which include Brazil, Russia, India, China and South Africa—are cooperating to push the king of currencies off its throne.
Together, the member nations make up about 45% of the world’s population. And their combined GDP of $26 trillion represents about 30% of global output, which gives them undeniable economic strength.
And their power base is on the rise:
As of January 1, 2024, Ethiopia, Egypt, Iran and the United Arab Emirates have joined BRICS. Saudi Arabia—the world’s second-largest oil producer—has been invited to join, and at least 16 other countries have expressed interest.
This, says Business Insider, “should be a key cause of concern for the US, as new members along with countries who want to join could amplify dedollarization.”
Meanwhile, BRICS is flexing its financial muscles:
New Development Bank: As a financial counterweight to Western-dominated institutions like the World Bank and the IMF, BRICS has established the New Development Bank.
The bank has $100 billion available for infrastructure projects and is offering dedollarizing nations an alternative lending source free from perceived economic and political strings.
BRICS payment platform: In December 2023, BRICS deployed a new payment platform called, appropriately, BRICS Pay.
BRICS Pay is already making it easy for nations to bypass the US dollar and make cross-border transactions in local currencies, which could significantly reduce global reliance on the greenback for international trade and settlements.
Central bank digital currencies: CBDCs, like China’s digital yuan and Russia’s proposed digital ruble (slated for 2025), when combined with the new BRICS payment platform, could potentially transform traditional payment systems and end dollar dependance.
Individual nation initiatives: Beyond collective dedollarization initiatives, individual BRICS nations are implementing their own measures to reduce dependence on the dollar.
India, for example, is now settling trade with Russia in rupees more often.
And former State Department official Thomas Hill says, “It is clear that traditional US allies, such as Egypt, Saudi Arabia, and the UAE, are already exploring ways to dedollarize and that Beijing is helping that process move forward.”
Alternative currencies: Governor Yi Gang of the People’s Bank of China declared, “China is committed to promoting the internationalization of the renminbi and building a more diversified and stable global financial system.”
Back here in the United States…
The federal government may have to deal with higher borrowing costs as the dollar weakens and demand for US Treasuries dwindles.
This may usher in a new era of financial constraints for the administration and the Fed, which could have a profound impact on the economy.
Additionally, Washington’s ability to influence global financial transactions and wield sanctions as a foreign policy weapon could weaken as BRICS efforts multiply.
Does this mean the dollar is about to lose its reserve currency status?
The dollar still accounts for more than 80% of international transactions. And despite concerted BRICS efforts to dethrone the greenback, most analysts don’t forecast its imminent demise.
But with so many nations joining BRICS…
Plus, Washington’s own fiscal problems weakening the dollar from within…
The dollar faces a long, fierce fight against a determined rival who is growing stronger every day and may stop at nothing to see the greenback tap out for good.
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