Key Highlights
- BRICS is a combination of five countries – Brazil, Russia, India, China, and South Africa – which have the potential to dominate the world economy in the future. BRICS accounts for a significant portion of the world’s population, GDP, and land area, and hopes to facilitate easy trade and economic activity between its members.
- Some investors and speculators have predicted that the rise of BRICS would lead to the decline of the US dollar, but it is unlikely to happen due to several reasons. BRICS does not have a single currency, the dollar is currently the benchmark, and a large percentage of salary payments around the world are made in dollars.
- While BRICS has promising prospects, it is unlikely to have a significant effect on the US dollar in the short and medium term, and investors with their assets in dollar-based investments need not worry about a sudden collapse of the dollar.
What is BRICS?
In 2001, Jim O’Neil the chief economist at Goldman Sachs at the time coined the acronym BRIC in his paper “Building Better Global Economic BRICs. BRICS is essentially a combination of five countries, Brazil, Russia, India, China, and eventually South Africa. According to O’Neil’s thesis, by the year 2050, the BRICS would dominate the world economy.
BRICS have proven that they are a force to be reckoned with on the global economic stage and play a great role in the overall grand scheme of things. For instance, BRICS accounts for 41.27 percent of the World’s Population, 31.5 percent of GDP, and 26.7 percent of the World’s land area. This is in addition to the fact that the two most populated countries in the world India and China are part of BRICS. BRICS also hopes to create and facilitate easy trade and economic activity between members.
Would the BRICS affect the US dollar?
As always when the ‘new cool kid’ comes around the block, the ‘old kid’ may feel threatened and fidget that their time of dominance is over. Since the coinage of BRICS, many investors and speculators have predicted their dominance heralding the decline of the US Dollar. This is yet to be seen.
Their sheer economic potential and population size have drawn comparisons between BRICS and the traditional economic strongholds, G7(USA, Japan, Germany, Canada, France, UK, and Italy).
In recent weeks, the conversation has tilted heavily to a comparison of the BRICS and the US Dollar. This is probably due to recent developments and the deterioration of economic and political ties between the US and some big guns in BRICS; Russia and China. Some speculators have predicted a negative toll on the dollar and pile driving it to new lows.
Without a deeper dive into the dynamics of how the US Dollar gained and maintained its dominance as the ‘currency of the world’ one may be tempted to fret over the long term of the US dollar. However, on a closer look, it is highly unlikely that the Dollar would crumble under pressure from the BRICS, and here is why.
Why the Dollar would likely maintain its dominance
- BRICS does not have a single currency. Unlike the EU in which member states all adopt the Euro, the understanding and synergy between BRICS members haven’t culminated in a single currency. Individual currencies of member states would face an uphill battle against the Dollar.
- The Dollar is currently the benchmark. The gold standard which other currencies are measured against. Even if there is a future decline, it would take years if not decades for a reasonable abandonment of the Dollar.
- Salary payment makes us a huge percentage of Dollar transactions annually. With the wave of remote and hybrid jobs, most employees from around the world receive their pay in Dollars. It would take a lot to cause a seismic shift from this.
While the potentials and prospects of BRICS may be promising, it is unlikely to see a strong effect on the US Dollar in the short and medium term. Even unified and heavily backed currencies like the Euro and Central African Franc XOF are still rated lower than the Dollar.
Investors with the bulk of their portfolio and assets domiciled in the US or as Dollar based assets have little or nothing to worry about. Whilst anything is possible in the world of finance and economy, a sudden collapse of the US Dollar is highly unlikely.
Life is full of suprises,the writer have not asked himself, why theDollar is under attack ? and why is it happening now ?lack of information and reasonable knowledge can makes a person to have a loose moral grip to makes his your life more pleasurable,the next question is or our world have a moral foundation.
Chinese economy is more balanced than american economy.secondly india have probably a better educational system than China and america,so those 2 countries have about 3 billion people combined together.
In the 1770c Britain was the largest economy in our planet,due to the accumulation of wealth and investment in britain due to the unpaid africans working free in the platation in the west.america have started to overtake Britain as the largest economy in the1900.so america can go the way britain went.
The other angle of this question ? can the Chinse replaces the dollar ? or it is possible ? it is already happening,but i doubt that the Chinese will allows their Yuan, to be internationalizes,although they allows their currency to be trade in nigeria and saudis arabia and banglesh,about 20 countries have started to ditch to dollar and switch in Gold reserve