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Will a New Global Reserve Currency Threaten the Dollars’ domination? The short anwser is YES!

An Evolving Landscape

There is a rising discussion surrounding the potential emergence of a new currency backed by the BRICS nations—Brazil, Russia, India, China, and South Africa—with the intention of challenging the supremacy of the US dollar as the global reserve standard. 

The driving force for exploring an alternative global currency has been fueled by mounting concerns over the weaponization of the U.S. dollar through the imposition of sanctions and engagement in trade wars. Many nations are actively seeking increased autonomy from the U.S. dollar-centric financial system. Exploring the factors supporting the status of the U.S. dollar as the world’s predominant reserve currency is imperative in understanding this evolving landscape. 

How Did We Get Here?

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Following the conclusion of World War II, the Allies convened and designated the U.S. dollar as the primary global reserve currency, pegging it to gold at a rate of $35 per ounce. However, in 1971, the dollar was detached from gold due to insufficient U.S. gold reserves, marking its transition into fiat money. Subsequently, U.S. Secretary of State Henry Kissinger played a pivotal role in establishing the petrodollar system during discussions with King Faisal of Saudi Arabia. In this arrangement, the United States committed to providing military support, and in return, the Organization of the Petroleum Exporting Countries agreed to denominate oil globally in US dollars. This mechanism created a synthetic demand, as nations purchasing oil needed U.S. dollars, reinforcing the supremacy of the U.S. dollar. 

Nonetheless, signs indicate that the era of dollar dominance may be waning. In 2021, Saudi Arabia and Russia solidified a military cooperation agreement, diminishing the exclusive role of the U.S. as the primary protector of the Saudi Kingdom. During the World Economic Forum in Davos in late 2023, Saudi Arabia’s Finance Minister Mohammed Al-Jadaan announced a shift in policy, expressing openness to trading in currencies beyond the U.S. dollar while marking a departure from a practice maintained for nearly five decades. These developments signal a potential shift towards de-dollarization. 

The Gold Standard

According to the World Gold Council, the initial two months of this year witnessed substantial gold acquisitions, with notable purchases coming from Singapore at 51.4 tons, Turkey at 45.5 tons, China at 39.8 tons, Russia with 31.1 tons, and India collecting 2.8 tons. This trend strongly suggests that BRICS nations are accumulating gold reserves in preparation for the establishment of their proposed currency, with countries like Turkey, among others, expressing interest in BRICS membership.  

Concurrently, there is a discernible decrease in the share of US dollars held by central banks, as indicated by the Currency Composition of Official Foreign Exchange Reserves. This strategic realignment underlines a global repositioning as nations brace themselves for an impending shift in the international monetary system.

The Rise of BRICS

For decades, the U.S. has held the status of global dominance. However, the BRICS nations, encompassing over 40 percent of the world’s population and boasting an aggregated global GDP of 31.5 percent, have now surpassed a collective GDP of 30.7 percent comprising the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. This numerical strength raises the possibility of the BRICS nations achieving self-sufficiency, engaging in trade among themselves with diminished reliance on the United States. This prospect aligns with China’s expansive Belt and Road Initiative, a monumental infrastructure project aimed at linking Asia, Africa, Europe, and South America, conspicuously excluding the U.S.

Despite the fluctuating dynamics between China and India, both nations exhibit a willingness to cooperate to some extent. India, for instance, participates and invests in the Belt and Road Initiative indirectly through institutions like the Asian Infrastructure Investment Bank, New Development Bank, and Shanghai Cooperation Organization. Notably, seven out of the 13 countries have either joined or applied for membership in the BRICS, and all nations are connected through the Belt and Road Initiative. This confluence of economic and geopolitical collaborations is shaping a future where the United States seems to be on the fringe.

De-Dollarization

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As the reliance on the US dollar diminishes, Central Banks are anticipated to divest their dollar reserves. This could trigger hyperinflation, a surge in interest rates to counteract the loss of purchasing power, and a decline in asset prices, amplifying the trajectory of the United States’ decline. The ongoing trend of de-dollarization echoes historical patterns of the rise and fall of empires and reserve currencies, such as the Dutch Empire and the guilder or the British Empire and the pound sterling. It suggests an inevitable shift in the global order, with the possibility of the BRICS nations emerging as key players in shaping the next chapter of the international landscape.

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The BRICS nations have also significantly increased their gold buying  to end reliance on the U.S. dollar. The World Gold Council reported that BRICS is the largest buyer of gold reserves in 2023, and the demand is already expected to rise by the end of this new year.

With the BRICS nations stockpiling gold, these moves put the U.S. dollar in jeopardy as gold would be a hedge of international purchasing power. This past year highlighted more than 130 countries showing interest in dropping the U.S. Dollar for international trade, due to the appeal of the BRICS currency that is being backed by gold.

The fact that gold is being accumulated by the BRICS countries as a basis for international trade should incentivize central banks, and individual investors, to acquire precious metals. Reagan Gold Group has the guidance you need for a gold or silver investment in precious metals, hard assets that are not reliant on an underlying financial or government system. Contact Reagan Gold Group and learn more about hedging your portfolio with precious metals in these uncertain economic times. Book a FREE consultation today and consider gold or silver  as an alternative option to our weaking dollar.

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