In recent months, there has been renewed speculation about the ongoing shift toward de-dollarization with the introduction of a digitally block-chain-based BRICS currency and the potential ramifications for the United States and the global financial system. But how impactful can this trend be? Let’s break it down…

Catch-Up Quick: BRICS is an intergovernmental organization originally comprising five nations: Brazil, Russia, India, China, and South Africa. In 2023, BRICS grew to include Iran, Egypt, Ethiopia, and the United Arab Emirates. BRICS controls nearly $30.8T in global GDP and rules over 3.3 billion constituents. In contrast, the G-7 controls $46T in GDP and just 750 to 800 million people. One of the major goals of BRICS is to de-dollarize the global economy by incentivizing trade in currencies outside the United States Dollar (USD). For context, the USD has been the world’s leading reserve currency since WW2, comprising nearly 100 percent of transactions in oil since the 1980s, nearly 70 percent of global foreign currency reserve holdings, and nearly 90 percent of international transactions. 

Why is this important? Simply, it provides the U.S. with significant financial power through economic sanctions, blocking the use of foreign reserves (as seen with the sanctions placed upon Russia), and provides massive economic investments in the U.S. Treasuries and debt markets as countries spend their dollars within these markets. In recent years, the idea to de-dollarize the global economy has grown rapidly as many countries have become wary of the economic power of the United States and have worked to de-dollarize their own economies to limited effect. As of April 2024:

While the trend toward de-dollarization has been slow, there is heightened speculation and worry about the impact of a new BRICS currency. 

What’s So Special About the BRICS currency?: This is the first time in recent years that a combination of several economic powers is working together to create a currency to dethrone the USD. As such, BRICS nations are attempting to ensure their currency is convenient to everyone, including governments, corporations, and consumers. While many details continue to remain under wraps, there has been increased speculation about the introduction of this currency at the BRICS 2024 Summit in October 2024, where de-dollarization is expected to take center stage. Russian Deputy Foreign Minister Sergey Ryabkov has mentioned that the alliance will become stronger than ever after the summit and developing nations will be ushered into “a whole new ball game”. 

As for the currency itself, it’s expected to utilize blockchain and be fully digital, potentially backed by gold. These elements can be particularly worrisome as it can exponentiate the adoption of the currency and stabilize it quickly against volatility due to its backing by gold. In contrast, the U.S. abolished the gold standard in 1971 and has had full control over its ever-increasing money supply as it fuels the growing national debt. The backing by gold could lead to an influx of gold to the BRICS nations, supporting the currency and encouraging adoption and international usage, particularly in the oil markets, a massive market for the Russian, Indian, and Chinese governments. 

Long-Term Implications: So what are the ultimate impacts of this currency? In the short-term: nothing- a currency does not get adopted overnight. In the mid-to-long term, we could see a paradigm shift in the global reserve currency from the USD to BRICS or increased divestment from the USD to local currencies. In turn, this could devalue the USD significantly and dilute its financial and economic power in the world while increasing the value of gold (the USD and gold trade inversely). Consequently, this could increase the power of BRICS and Asian markets in the global climate. While many believe the fall of the United States dollar as a reserve currency or the rapid rise of a BRICS currency is highly unlikely, the overall trend toward de-dollarization suggests this trend is worth keeping an eye upon due to its potential to deliver a massive impact.

What’s the Big Picture: Mixed Signals and Uncertainty. There are continuance weaker signals about the strength of the economy, increasing hopes of a rate cut sooner rather than later. Currently, Wall Street analysts are pricing in a roughly 75% chance of a cut in September.

Looking Ahead:

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