HOW WILL BRICS AFFECT THE US DOLLAR

For decades, the United States dollar (USD) has reigned supreme as the world's principal reserve currency, fueling international trade and finance.Estimated to be involved in over 80% of global trade, the dollar's dominance has been largely unchallenged since the end of World War II.However, the emergence of the BRICS economic alliance – initially comprised of Brazil, Russia, India, China, and South Africa, and now expanded to include Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE) – is prompting a serious re-evaluation of the global financial landscape.The BRICS nations, representing a significant portion of the world's population and economic output, are actively exploring alternatives to the dollar, including the possibility of a common BRICS currency.But what impact could this have on the greenback?Is the dollar's reign truly in jeopardy, or will it adapt and maintain its position atop the global financial hierarchy? The BRICS grouping of major emerging economies is holding its fifteenth summit later this month. Up for discussion: an expansion of the bloc, greater use of local currencies and the possibility of a BRICS currency which may have the potential to challenge the dominance of the US dollar. We'll outline here the key points and link to our major new reportThis article delves into the complex dynamics at play, examining the potential effects of BRICS initiatives on the US dollar and what it means for the future of international finance. He suggested that if a BRICS currency unit is worth 1 ounce of gold and the gold price goes to US$3,000 per ounce, the BRICS currency unit would be worth US$3,000, while the dollar would lose value compared to the BRICS currency as measured by the weight of gold.Get ready to explore the shifting sands of the global economic order, and understand the factors that will shape the dollar's destiny.

Understanding BRICS and Its Goals

The acronym BRICS was initially coined to represent the then-major emerging market economies, namely Brazil, Russia, India, and China.The underlying thesis was that these economies were poised for rapid growth, outpacing that of the Group of Seven (G7) nations. Even if the BRICS de-dollarized, much of the world would still use dollars, and the global monetary order would become more multipolar than unipolar. Many Americans are inclined to lament declinesSouth Africa was later added to the bloc, solidifying its representation across continents.The BRICS nations share a common desire to reshape the global order and establish a more multipolar world, one where economic and political power is more evenly distributed.

The BRICS Economic Vision

The core of the BRICS vision lies in fostering greater economic cooperation and integration among its member states.This includes:

• Increasing trade in local currencies to reduce reliance on the US dollar.
• Establishing the New Development Bank (NDB), often seen as an alternative to the World Bank.
• Exploring the creation of a common BRICS currency to facilitate trade and investment within the bloc.

Brazil's President has been a vocal proponent of a common currency for trade and investment between BRICS nations.The aim is to diminish vulnerability to dollar exchange rate fluctuations and promote greater financial autonomy.

The Potential BRICS Currency: A Challenge to the Dollar's Dominance?

The prospect of a BRICS currency has generated considerable debate and speculation.While the precise details of such a currency remain unclear, the underlying objective is to create a viable alternative to the US dollar for international transactions, particularly within the BRICS sphere of influence.

How Could a BRICS Currency Function?

Various models have been proposed for a BRICS currency, ranging from a basket of existing BRICS currencies to a completely new unit. Preview. The BRICs concept was launched as a financial sector grouping of the then-major emerging market economies which were expected to grow faster than the Group of Seven or G7 economies. 1 The thesis was that as the BRICs economies grew quickly over the decade to 2025, their impact on the global economy and their fiscal policy would become increasingly important. 2 The leadersOne intriguing suggestion involves pegging the currency to a tangible asset like gold. But even if a BRICS currency did become a widespread international success which as noted is a long-shot a somewhat weaker dollar tends to help U.S. manufacturers by making them more competitive globally, helps attract tourists to the U.S, and has other effects that aren t entirely negative.The underlying idea is to provide stability and inherent value.

For example, consider a scenario where one unit of the hypothetical BRICS currency is equivalent to one ounce of gold. For decades, the United States dollar (USD) has been at the core of global finance, powering transactions from trade in oil to everyday cross-border payments. Now, a grouping named BRICS formed originally by Brazil, Russia, India, China, and later South Africa has expanded in January 2025 to include Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE). This bloc, sometimes known asIf the price of gold rises to $3,000 per ounce, the BRICS currency unit would automatically be worth $3,000, effectively strengthening its value against the dollar.

Potential Impacts on the US Dollar

The introduction of a successful BRICS currency could have several significant consequences for the US dollar:

• Decreased Demand: As BRICS nations and their trading partners increasingly use the new currency for international transactions, demand for the US dollar could decline. Brazil's President called on Wednesday for the BRICS nations to create a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchangeThis could lead to a depreciation of the dollar's value against other currencies.
• Reduced Influence: The dollar's dominance has historically given the US considerable leverage in international affairs.A viable alternative currency could weaken this influence, limiting the US's ability to impose sanctions and exert economic pressure on other nations.
• Shift in Global Power: A successful BRICS currency could signal a broader shift in the global economic order, with power gradually moving away from the US and towards emerging economies.

However, it's important to acknowledge that creating and sustaining a globally accepted currency is a complex undertaking.The BRICS nations face numerous challenges, including differing economic policies, political considerations, and the need for widespread acceptance and trust in the new currency.

How a BRICS Currency Could Affect the US Dollar’s Value

The impact of a BRICS currency on the US dollar is a multifaceted issue, touching upon trade, investment, and geopolitical strategy.

De-dollarization: A Slow but Steady Process

The move away from the dollar, often termed ""de-dollarization,"" isn't a sudden event but rather a gradual process.Even if a BRICS currency doesn’t become universally adopted, increased use of local currencies within the BRICS bloc diminishes reliance on the dollar. He suggested that if a BRICS currency unit is worth 1 ounce of gold and the gold price goes to US$3,000 per ounce, the BRICS currency unit would be worth US$3,000, while the dollar would loseThis incremental shift can gradually erode the dollar's dominance.

The Role of Sanctions and Geopolitical Tensions

The US dollar’s role as the primary currency for international trade gives the United States considerable power through economic sanctions.A stable BRICS currency could reduce the effectiveness of US sanctions, as countries targeted by sanctions would have an alternative mechanism for conducting trade. The potential impact of a new BRICS currency on the US dollar remains uncertain, with experts debating its potential to challenge the dollar's dominance. However, if a new BRICS currency was to stabilize against the dollar, it could weaken the power of US sanctions, leading to a further decline in the dollar's value.This ability to circumvent US financial controls could accelerate the decline in the dollar's global value.

Example: Oil and Commodity Trade

The majority of global commodity trade, particularly oil, is conducted in US dollars.If BRICS nations begin trading oil and other commodities in their own currency or a BRICS currency, the demand for dollars to facilitate these transactions would decrease, thus weakening its international value.

Positive and Negative Impacts of a Weaker Dollar

It's crucial to understand that a weaker dollar doesn't necessarily equate to economic doom for the United States.While a decline in the dollar’s global dominance can be concerning, there can also be some positive outcomes.

Potential Benefits of a Weaker Dollar for the US

• Increased Competitiveness: A weaker dollar makes US exports more attractive to foreign buyers, boosting US manufacturing and creating jobs.
• Tourism Boost: A weaker dollar makes the United States a more affordable destination for tourists, driving revenue for the tourism industry.
• Reduced Trade Deficit: A weaker dollar can help reduce the trade deficit by making imports more expensive and exports more competitive.

Potential Drawbacks of a Weaker Dollar for the US

• Increased Import Costs: A weaker dollar makes imports more expensive, potentially leading to inflation.
• Reduced Purchasing Power: A weaker dollar reduces the purchasing power of Americans traveling abroad or buying foreign goods.
• Loss of Confidence: A significant decline in the dollar's value could erode confidence in the US economy and its ability to manage its finances.

Challenges and Obstacles to a BRICS Currency

While the concept of a BRICS currency is gaining traction, several significant hurdles must be overcome before it can become a reality.

Economic Divergence Among BRICS Nations

The BRICS nations are diverse in terms of economic structure, political systems, and levels of development. How the BRICS Currency Could Affect the US Dollar. The BRICS currency could significantly alter the landscape of global finance, especially in its impact on the US dollar. Decreased US Dollar Demand. The US dollar has been the world s reserve currency for decades. It is used in the majority of global trade, particularly for oil, commoditiesAligning their economic policies and achieving consensus on monetary policy can be challenging.

Lack of Trust and Transparency

Building trust in a new currency requires transparency and sound governance. The dollar has been the world s principal reserve currency since the end of World War II, and is estimated to be used in more than 80 percent of international trade. Earlier this yearThe BRICS nations must establish credible institutions and mechanisms to ensure the stability and reliability of the currency.

Geopolitical Considerations

The US and its allies are likely to resist any attempt to undermine the dollar's dominance.Geopolitical tensions and competition could hinder the development and adoption of a BRICS currency.

Widespread Adoption

For a BRICS currency to be truly successful, it needs to be widely accepted by businesses and individuals both within and outside the BRICS bloc.This requires building confidence in the currency's value and usability.

The Future of the US Dollar: A Multipolar World

Even if the BRICS nations are successful in creating a viable alternative currency, it's unlikely that the US dollar will disappear entirely.Instead, the global monetary order is likely to become more multipolar, with the dollar sharing its dominance with other currencies.

A More Balanced Global Financial System

A multipolar currency system could lead to a more balanced and resilient global financial system.It could reduce the risk of financial crises and promote greater stability and cooperation.

The Dollar's Enduring Strengths

The US dollar still possesses several inherent strengths, including:

• The Size and Liquidity of US Financial Markets: The US has the largest and most liquid financial markets in the world, making it an attractive destination for investors.
• The Strength of the US Economy: Despite recent challenges, the US remains one of the world's largest and most innovative economies.
• The US Legal and Institutional Framework: The US has a well-established legal and institutional framework that provides a stable and predictable environment for businesses and investors.

These factors suggest that the dollar will likely remain a major player in the global financial system for the foreseeable future, even if its dominance is somewhat diminished.

Practical Steps for Businesses and Individuals

Given the uncertainty surrounding the future of the US dollar, businesses and individuals should take steps to prepare for a potentially changing global financial landscape.

For Businesses:

• Diversify Currency Holdings: Don't rely solely on the US dollar.Consider holding a mix of currencies to mitigate risk.
• Hedge Currency Exposure: Use financial instruments like forward contracts and options to protect against currency fluctuations.
• Explore Alternative Payment Methods: Be open to accepting payments in currencies other than the US dollar, particularly if you do business with BRICS nations.

For Individuals:

• Diversify Investments: Consider investing in assets denominated in different currencies to reduce your exposure to the US dollar.
• Stay Informed: Keep abreast of developments in the global financial system and the potential impact on your investments and savings.
• Plan for Currency Fluctuations: If you travel internationally or purchase goods from abroad, be prepared for potential fluctuations in exchange rates.

Conclusion: Navigating the Shifting Global Financial Landscape

The rise of BRICS and the potential emergence of a BRICS currency present a significant challenge to the US dollar's dominance.While the precise impact remains uncertain, it's clear that the global financial landscape is evolving.De-dollarization is underway, driven by a desire for greater economic autonomy and a more multipolar world.Even if a BRICS currency doesn’t fully replace the dollar, its existence can significantly weaken the power of US sanctions.For the United States, a somewhat weaker dollar can have mixed impacts, potentially boosting exports and tourism but also increasing import costs.It's important for businesses and individuals to understand these dynamics and take proactive steps to prepare for a potentially changing world order.Diversifying currency holdings, hedging currency exposure, and staying informed are crucial strategies for navigating the shifting sands of global finance.Ultimately, the future of the US dollar will depend on its ability to adapt to the changing economic and geopolitical landscape and maintain its attractiveness as a reserve currency.The question of how will BRICS affect the US dollar is complex, but by understanding the key trends and potential impacts, we can better prepare for the future.