- The expansion of BRICS to “BRICS-Plus” with the incorporation of countries such as Iran and Saudi Arabia questions its impact on the dollar.
- China and Russia explore transactions in yuan, challenging the hegemony of the dollar, but face obstacles in implementation and cooperation.
In recenttimes, the consolidation and expansion of the BRICS group, along with initiatives by nations such as China and Russia, raise questions about the future of the ‘greenback’. Let’s take a look at how these decisions could influence the international monetary system and what this means for investors and financial markets.
New Horizons for BRICS
The BRICS group, made up of Brazil, Russia, India, China and South Africa, is currently exploring the possibility of an expansion that would include powers such as Iran and Saudi Arabia. This expansion would not only increase their geopolitical influence but could also lay the groundwork for more concrete challenges to the dominance of the dollar.
However, the lack of cooperation between two of its largest members, China and India, limits its potential to unify efforts against the U.S. currency.
Monetary Diplomacy at Play
The recent meeting between Vladimir Putin and Xi Jinping, and China’s success in brokering rapprochements between Iran and Saudi Arabia, have reignited the debate over US global leadership and the primacy of the dollar.
While these diplomatic and strategic maneuvers will yield interesting results in the near future, they alone will not dislodge the dollar from its pedestal. The real question is whether these nations can offer a viable and attractive alternative to the global financial system.
The Yuan as a Contender
Russia has announced its willingness to accept loans in yuan, pending China’s approval. This step, if realized, would mark a milestone in the internationalization of the yuan and would represent a direct challenge to the use of the dollar in international transactions and lending.
Despite these intentions, the lack of concrete progress shows the complexities of challenging the dollar, which remains the dominant global reserve currency.
A new BRICS Currency?
The concept of creating a BRICS currency of its own, similar to the euro, is born as an ambitious idea that could offer an alternative to the dollar for trade and investment within the bloc .
However, for this or any other initiative to succeed, it is crucial that member countries adopt policies that promote financial freedom, such as the elimination of capital controls, thus allowing markets to decide the value and usefulness of this new currency.
Global Market Implications
The possibility of oil and other key resources being priced in alternative currencies to the dollar has profound implications for financial markets. Such a shift could alter economic power dynamics and reduce the influence of U.S. monetary policies on the global stage. However, the transition to a diversification of currencies in international trade is a complex and challenging process.
Despite the aspirations of the BRICS and other international players, the dominance of the U.S. dollar remains firm. Creating a credible alternative requires not only cooperation among nations with often divergent interests but also a global financial environment conducive to the adoption of new reserve currencies.
In the meantime, investors and markets will need to keep an eye on these developments as the global financial landscape continues to evolve. The key question remains: will we see a change in monetary hegemony in the near future, or will the US dollar remain the undisputed king of the global financial system?
Analysis of the USD/CNY chart
The current analysis of the USD/CNY currency pair shows a price of 7.1972 CNY. It has experienced a minimum change of 0.0006 ( 0.01%) recently . Over different periods, the pair has shown variations: an increase of 0.10% in the last 5 days, an increase of 0.40% in the last month, while it has seen a decrease of -1.18% in the last 6 months .
From the beginning of the year to date, the pair has risen by 1.27%, and over the last year, it has risen by 3.50%. Over the past 5 years, it is up 7.60%, and since inception, it has risen an impressive 369.15%.
Technical indicators provide a neutral view, with oscillators and moving averages suggesting a neutral stance towards the pair.
This neutrality indicates that there is no clear trend in the short term, which could mean that the pair could move in either direction based on external or internal factors affecting the US dollar or the Chinese yuan.
