BRICS is not a serious threat to the dollar... yet...
Fears about the new global reserve currency are premature.
Photo: Reuters
Hello Financial Healers,
Two months ago I wrote a piece on BRICS, the nation-alliance that includes Brazil, Russia, India, China, and South Africa. These nations, which represent over 40% of the world’s population, met in August to hold its 15th heads of state and government summit. Amdist rumblings of a gold-backed currency being created by BRICS, newscasters proclaimed that the dollar was doomed to decline in influence. You can find some of this information in my previous article: 👇
With BRICS’s announcement, I admit to feeling alarmed, but the more I studied, the more hurdles I discovered standing in the bloc’s way. Economist Daniel Lacelle laid out some of these obstacles, which I’ll reference below.
First, Lacelle points out: China, the driving force behind BRICS, “has no interest in being a global reserve currency.” China realizes the Herculean task of supplanting the US dollar, and wants no part of it. China’s “currency is currently used in only 5% of global transactions…” Compare that to the dollar and Euro, which added together makes up 79.09% of all SWIFT international payments.
Second, Lacelle writes that “neither China nor Russia has the slightest intention of losing their national currency to dilute it alongside a group of [weak] issuers... [Among the new BRICS countries]... the Argentine peso has fallen by 98%, the Egyptian pound by 78%, the Indian rupee by 35%, the Ethiopian birr by 68%, the Brazilian real by 55%… and the Iranian rial has collapsed by 90%…” Lacelle concludes… “Putting together weak currencies does not create a strong [one].”
Third and final, Lacelle writes that “China and Russia have capital controls…” which limit the “freedom of capital movement.” The United States, though far from perfect, boasts economic freedom, which provides “investment, legal security, and… free movement of capital.”
So there you have it…
BRICS is growing, but it won’t replace the dollar any time soon. Lacelle warns, “the [U.S.] government may jeopardize the credibility of the… dollar if it continues to generate deficits of two trillion dollars a year…” Such acts could cause “the dollar… [to] lose its reserve status.”
God bless your Prosperous Soul,
Stephen K. De Silva
Correction: An earlier version of this article included an incorrect statement regarding BRICS’s intention to create a gold-backed cryptocurrency, which has been removed.
About: Stephen K. De Silva is an author, speaker, and financial coach. From 1995 until 2017, he served as the CFO of Bethel Church, and a member of the senior leadership team. Stephen’s blend of experience, training, and gifting make him a pioneer in the subject of money. You can reach Stephen at hello@prosperousoul.com