BRICS – an economic cooperation between Brazil, Russia, India, China, and South Africa – poses a threat to the global dominance of the US dollar. Over the past few years, the US has imposed strict economic sanctions on China and Russia. As a result, governments around the world have started forming closer trade relationships with other countries, and 19 more countries are looking to join BRICS. This has led to talks of a BRICS currency backed by gold. However, it is unlikely that a monopoly of power will emerge due to competition among the BRICS nations, and cryptocurrency may emerge as a neutral means of international trade.
—
Introduction
There are some major shakeups happening on the global stage. The US dollar could soon be dethroned as the world reserve currency.
What is BRICS?
BRICS is an acronym that represents the economic cooperation between Brazil, Russia, India, China and South Africa. The term was initially coined by Goldman Sachs economist Jim O’Neill, who put forward an investment thesis about how these countries will be leading the global economy in future generations.
Investments into BRICS
From Goldman Sachs and other Western investment firms, BRICS received large investments, with the BRICS portfolio of Goldman Sachs alone was as high as $100 billion at its all-time high. However, in 2015, Goldman Sachs closed down their fund due to a few slow years of growth in these countries.
Shifts in Market Sentiment
Around the same time that Goldman Sachs closed their fund, tensions began to heat up between the US and the two largest countries in the BRICS block, China and Russia. In the past few years, the US has imposed strict economic sanctions on both of these countries, which has made trade very difficult for the BRICS nations.
Global Economic Shifts
As more sanctions continue to be imposed around the world, BRICS and other economic alliances between countries outside of the US, have become more and more important. Governments around the world began to realize that the US could cut them off from the global economy at any moment, so they started forming closer trade relationships with each other just in case that ever happened.
The Implications
The US dollar has shown signs of weakness in the past few months, and the governments around the world are announcing that they’re distancing their dependence on the dollar. This week, it was reported that 19 more countries are looking to join BRICS. Other reports have suggested that some of these governments are planning for a BRICS currency that will somehow be backed by gold.
The Role of US Dollar as Global Reserve Currency
Politicians here in the US are able to set the rules of international trade because the dollar is the global reserve currency. However, a lot of people in the industry have been questioning this narrative. The dollar status as the global reserve currency requires the United States to constantly run a trade deficit, which can be one of the reasons why we have been consuming and spending a lot more than we produce here and why we outsource many of our jobs to other countries.
Costs of the US Dollar as Global Reserve Currency
All these factors that come along with having global reserve currency actually hurt Americans by giving us higher prices, fewer jobs, higher taxes and significant military costs, which takes resources away from other areas of the domestic economy.
The Future with BRICS and Crypto
If another country or alliance of countries like BRICS were able to replace the dollar as the global reserve currency, that would actually be bad for the entire US economy. However, the competition among the BRICS nations is high, and none of these governments trusts any of the others with the power of a global currency. What the world needs is something neutral, and the option that we have that actually works is crypto.
Conclusion
The fight is just beginning to be fought, but if the shift towards crypto and away from the dollar happens, our economic systems will be more honest and less corrupt, and we could even see more peace in the world as governments shift from competition to cooperation.
