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BRICS’ Ambition: Challenging the Dollar

Leslie Maasdorp, the Chief Financial Officer of the New Development Bank (NDB) of the BRICS economic coalition, recently shared in an interview the coalition’s “medium to long-term ambition” to establish a new global currency that has the potential to compete with the US dollar. Comprising Brazil, Russia, India, China, and South Africa, the BRICS alliance aims to strengthen direct trade using their respective national currencies.

BRICS: A Global Force to be Reckoned With

With a collective population exceeding 3 billion people, which accounts for over 40% of the world’s population, the BRICS countries wield significant influence in global affairs. These nations collectively generate a GDP of approximately $56.6 trillion, solidifying their position as a formidable economic force.

The Path to Challenging the US Dollar’s Dominance

While Maasdorp emphasized that the coalition is still in the process of preparing to introduce a new fiat currency to challenge the US dollar’s dominant reserve status, he believes that this dynamic could change over time. He acknowledges that the Chinese Renminbi has yet to pose a substantial challenge to the predominance of the dollar. Moreover, Maasdorp highlights the NDB’s current reliance on the US dollar as its anchor currency for operational purposes.

Expanding BRICS: Growing Interest in Joining the Coalition

This year, the BRICS coalition has garnered significant attention, with numerous nations expressing their interest in joining the group. According to African Ambassador Anil Sooklal, 13 countries from Africa, Latin America, and Asia have either submitted membership applications or formally approached BRICS leadership to explore the possibility of joining the coalition.

The Need for a New Global Currency: Economic Headwinds for the United States

Plans for establishing a new global currency coincide with an assessment by HSBC Asset Management, warning of economic headwinds for the United States later this year that could potentially lead to a global recession. The report also predicts a turbulent 2024 for Europe, as it grapples with economic contraction, while the US economy is expected to face a downturn in the final quarter of this year.

Criticisms Surrounding the US Dollar and its Weaponization

Critics argue that the US government has weaponized the US dollar in response to Russia’s invasion of Ukraine. Sanctions imposed on Russia, including restrictions on access to foreign currency reserves, bans from the Swift network  (facilitating international payments), and targeting of its banks and energy companies, aim to isolate Russia and cripple its economy. However, some analysts caution that the weaponization of the dollar may unintentionally undermine its status as the world’s reserve currency, leading to increased demand for alternative payment systems and safe-haven assets.

Seeking Safe Havens: Gold and Bitcoin

Amidst these concerns, safe-haven assets such as gold and Bitcoin have gained attention. Gold, a precious metal traditionally considered a haven for thousands of years, and Bitcoin, the flagship cryptocurrency, are seen as potential alternatives. Larry Fink, CEO of BlackRock, the world’s largest asset manager, recently stated his belief that Bitcoin is “digitizing gold” and has the potential to revolutionize the financial system.

Conclusion

The BRICS economic coalition, with its ambitious plan to establish a new global currency, aims to challenge the long-standing dominance of the US dollar. As geopolitical and economic dynamics continue to evolve, the role of the dollar as the world’s reserve currency may face increasing scrutiny. The potential emergence of alternative payment systems and the demand for safe-haven assets underscore the need for proactive measures and strategic considerations in the global financial landscape.

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