BRICS US Treasury Sell Off Hits Record Breaking Levels, Shakes World Markets | Spells Dollar's Doom
BRICS US Treasury Sell Off Hits Record Breaking Levels, Shakes World Markets | Spells Dollar's Doom
Tech Revolution: 10-8-2023
The BRICS group of emerging nations had its annual meeting last month. They didn't agree on a common currency, and some members had different opinions about the US dollar. But that doesn't mean they've given up on their plan to use fewer dollars.
The BRICS group includes Brazil, Russia, India, China, and South Africa. They've asked six more countries to join them in their effort to reduce the influence of the US dollar and create another way of doing things in the world.
The new countries they've invited are Iran, the United Arab Emirates, Egypt, Argentina, Saudi Arabia, and Ethiopia. Iran, which has had many restrictions from the US, has been the most vocal about not using dollars.
The others have different ideas about what to do instead.
It's important to note that Saudi Arabia, Iran, and the UAE are big oil producers. Oil is usually traded in US dollars, so if they start using other currencies, it could have a big impact on the world economy.
Iran, as a significant oil producer, has faced heavy sanctions imposed by the US for many years. These sanctions limit their ability to use dollars in international trade. As a result, Iran has been actively seeking alternatives.
They've engaged in discussions with countries like India, Russia, and Sri Lanka about conducting trade using their respective currencies. In particular, China has been buying Iranian oil using its currency, the yuan.
Additionally, Iran has joined Russia's payment system, which helps them bypass dollar-dominated transactions.
While the United Arab Emirates hasn't made explicit declarations about moving away from the US dollar in trade, their actions suggest a different story.
Indian oil companies, for instance, have been using the UAE's currency, the dirham, to buy Russian oil. Furthermore, in a recent transaction, India used Indian rupees to settle an oil trade with the UAE's state-owned Abu Dhabi National Oil Company.
Experts believe that the UAE's decision to join the BRICS group signals a desire to reduce dependence on Western partnerships and play a more influential role in shaping global affairs.
Both Egypt and Argentina have faced challenges with a shortage of US dollars. Egypt's situation worsened when the US Federal Reserve increased interest rates, leading to a stronger US dollar.
The Egyptian pound lost about half of its value, making dollar-denominated imports more expensive. Egypt has been considering alternatives, including the Chinese yuan, Indian rupee, or Russian ruble for settling imports. They've even issued Japanese yen-denominated bonds and plan to issue Chinese yuan-denominated bonds.
Argentina, like Egypt, has started shifting away from the US dollar for some transactions due to a scarcity of dollars in their economy. They've turned to the Chinese yuan for certain transactions and allowed commercial banks to open deposit accounts in yuan.
However, it's worth noting that many Argentinians have been holding onto dollars to protect themselves from the peso's volatility. Therefore, a complete departure from the dollar remains uncertain. Some political leaders, like Javier Milei, have even proposed replacing the peso with the dollar.
Saudi Arabia is a significant player in the global oil market and has historically priced its oil exclusively in US dollars. Surprisingly, Saudi Arabia has expressed openness to exploring trade in other currencies, such as the euro or its currency, the Saudi riyal.
While they haven't yet switched to non-dollar pricing, this willingness to discuss alternatives demonstrates their strategic thinking regarding trade arrangements.
And finally, Ethiopia. They have faced significant economic challenges, including a civil war that began in late 2020. While the war ended in 2022, the country continues to grapple with economic uncertainty and a shortage of foreign currency.
Ethiopia hasn't publicly declared a shift away from dollar-dominated trade, but its interest in joining the BRICS group signifies a desire for a new global order and alternative trading options.
So, these countries are exploring options beyond the US dollar in their trade, and it's something to keep an eye on.
In 2023, the BRICS countries decided to reduce their investments in U.S. Treasury bonds by a significant amount, specifically cutting down on $122.7 billion worth of these assets. This move is part of their larger plan to protect themselves from potential U.S. economic policies that might affect the dollar's ability to support its increasing deficit.
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