Insights

BRICS expands and USD gets squeezed

By Paul Reid

14 March 2024

3257 BRICS update

BRICS have just entered the expansion phase, and traders would be wise to keep their eyes on USD as the speculation unfolds. It’s not a stretch of the imagination to assume BRICS might eventually lead to de-dollarization, after all, it’s the unwritten goal of the alliance – to be able to trade with other nations without the need for USD.

The implication is that the larger the BRICS group gets, the more USD weakens as a global reserve currency. And now we see not one or two countries applying for membership, we see 30 countries joining the fledgling energy empire. Traders can’t buy BRICS stock, but they can short USD pairs. Is that a good idea?

Six things about BRICS that every trader should know

Despite the Fed doing everything to give a strong appearance, the US is walking on shaky ground and the world knows it. In fact, the share of US dollar reserves held by foreign central banks has dropped 3.45% to 59%, the lowest in 25 years, and BRICS is only just getting started. Here are six current BRICS initiatives that might heavily influence USD in the coming weeks and months.

1. BRICS nations stopped taking USD loans

The BRICS nations have announced that they will stop taking loans denominated in US dollars. This decision is likely driven by the desire to reduce their dependence on the US dollar and strengthen their own currencies. For traders, this could mean increased volatility in the forex markets, particularly for the US dollar and the currencies of the BRICS nations.

2. BRICS membership

The BRICS alliance is set to undergo a major expansion in 2024, with 30 new members expected to join. 

Algeria, Argentina, Bahrain, Egypt, Indonesia, Iran, Saudi Arabia, United Arab Emirates, Afghanistan, Bangladesh, Belarus, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Senegal, Sudan, Syria, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. 

This expansion could significantly increase the alliance’s influence on global economic and political affairs. Traders should monitor these developments closely, as they could affect everything from commodity prices to equity markets. 

3. BRICS announces an e-payment platform

The BRICS nations are reportedly working on a common e-payment platform. This move is likely aimed at facilitating digital transactions among the member countries and reducing their reliance on international payment systems. For traders, this could mean a fundamental shift in market prices, especially commodities such as oil.

4. BRICS wealth tops $45 trillion

The investable wealth of the BRICS nations has reached a staggering $45 trillion (USD) in 2024. This growth could suggest bullish outlooks for assets related to the BRICS nations, including currencies and indices.

5. Russia dabbles in digital currency

Russia is reportedly exploring digital assets ahead of a potential BRICS currency launch. This development suggests that the BRICS nations are considering the use of digital currencies, which could have significant implications for the global financial system. Crypto traders might want to keep a close eye on the developments.

6. First 2024 meeting of BRICS central banks

The central banks of the BRICS countries are set to hold their first meeting in 2024. This indicates increased financial cooperation among the member countries, which could lead to better coordinated monetary policies. Such cooperation could affect interest rates, inflation, and other economic indicators in the member countries, with potential ripple effects on global markets.

Conclusion

There’s been plenty of negative reporting about BRICS over the last few months, suggesting discord between India and China, among others, but despite such rumors, the BRICS group seems to be committed to the union. The key takeaway here is that BRICS is growing.

As a cause and effect, BRICS strength erodes USD as a reserve currency and consequently weakens the already fragile US economy.

If the Fed continues to only play the rate policy game, shifting equity between international debt and inflation, then the US is doomed in the long run. For this reason, be on the lookout for new initiatives that could lower inflation without increasing debt. Any new and effective initiative announced will immediately boost USD confidence.

If the Fed plans are more of the same, expect more of the same market uncertainty.


This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.


Author:

Paul Reid
Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.