Main financial assets discussed: SPDR Gold Shares ETF (GLD)
Top 3 key points:
1. Russia's announcement that the BRICS currency will be backed by gold suggests a potential opportunity for gold. Speculation around a BRICS gold standard could strengthen a bullish trend in the market.
2. Multiple factors are fueling the bullish sentiment towards gold, including global central banks diversifying away from U.S. assets, concerns about inflation and US fiscal deficits, and the potential economic downturn indicated by the persistent yield curve inversion.
3. The threat of a functioning BRICS gold standard dethroning the USD is unlikely due to the challenges of building the necessary financial system infrastructure and the lack of trust in the BRICS countries to redeem the currency for actual gold.
Recommended actions: **Buy** gold or GLD now while the rumors of a BRICS gold standard are still circulating, and then **sell** when the news about the gold standard is officially released at the BRICS summit in August. Consider using GLD options to hedge against potential downside risk.
### Summary
Many developing countries, including BRICS nations, are frustrated with the dominance of the U.S. dollar and will discuss alternatives at a summit in Johannesburg. However, the dollar's position as the dominant global currency remains unchallenged.
### Facts
- The strength of the U.S. dollar against local currencies in developing countries has caused prices of foreign goods to soar, leading to reduced sales and job layoffs.
- The BRICS bloc, consisting of Brazil, Russia, India, China, and South Africa, along with other emerging market countries, will discuss their grievances against the U.S. dollar's dominance at a summit in Johannesburg.
- The BRICS countries have previously talked about introducing their own currency, but no concrete proposals have emerged. However, they have discussed expanding trade in their own currencies to reduce reliance on the U.S. dollar.
- The U.S. dollar is the most widely used currency in global business and previous challenges to its dominance have failed.
- The BRICS countries launched the New Development Bank in 2015 as an alternative to the U.S. and European-dominated International Monetary Fund and World Bank.
- Developing countries are concerned about the U.S.'s use of the dollar's global influence to impose financial sanctions and the destabilizing effects of fluctuations in the dollar on their economies.
- While the euro and China's yuan have gained some traction in recent years, they still do not rival the dollar in terms of international gravitas.
- The alternatives to the dollar have not been able to gain dominance, and any shift away from the dollar will take time and trust.
- Some countries, such as Argentina and Zimbabwe, have experienced economic turmoil and have turned to the U.S. dollar for stability.
### Summary
India is unlikely to endorse a common BRICS currency, as it fears China's dominance in the bloc and the strengthening of the yuan. However, it may not immediately block discussions on the proposed currency at the BRICS Summit.
### Facts
- 🚫 India is not interested in being part of the proposed BRICS currency, as it sees it as China's attempt to gain hegemony.
- 🔄 India may not use its veto power to stop the currency proposal immediately, but it has concerns about China's dominating role.
- 🤝 The proposed BRICS currency is expected to heavily benefit China, as it is the dominant economy in the bloc.
- 🌍 The plan for a common BRICS currency may take time due to the different levels of economic development among the members.
- 📅 The 15th BRICS Summit will be held in Johannesburg from August 22-24, with leaders from Brazil, Russia, India, China, and South Africa expected to attend.
- 💲 The US dollar accounts for 58.36% of global foreign exchange reserves, while the Chinese yuan only accounts for 2.7%.
- 💱 Determining the value of the proposed BRICS currency would be a challenge due to the differing economic situations of the member countries.
- 💼 Harmonizing financial rules and regulations, such as debt-to-GDP ratio, would also be difficult for the BRICS members.
- 💔 Weaker economies in the EU, like Greece and Portugal, faced difficulties when the euro was introduced, and BRICS countries lack sufficient social security to handle strict debt-to-GDP ratios.
The BRICS alliance could gain control of the majority of the world's oil and gas trade by including Saudi Arabia and the United Arab Emirates, which could lead to a shift away from the USD and the de-dollarization of the oil economy.
The Brics economic group, consisting of Brazil, Russia, India, China, and South Africa, is discussing the possibility of expanding its membership and promoting the use of local currencies for trade settlement, with aims to challenge the dominance of the US dollar, but analysts believe that the greenback is unlikely to lose its status as the international reserve currency.
The BRICS summit, which aims to establish a new world monetary order and give voice to underrepresented nations, is criticized for being a nebulous concept without concrete achievements and is primarily centered around China.
Brazil's President proposed the creation of a common currency for BRICS nations to reduce their vulnerability to dollar exchange rate fluctuations, although officials and economists have acknowledged the challenges of such a project.
South Africa's finance minister says that the BRICS grouping will not replace international payment systems like SWIFT but will explore creating one that strengthens trade in local currencies.
The BRICS summit is aiming to reduce reliance on the U.S. Dollar, as the coalition confirms new members including UAE, Egypt, Ethiopia, Saudi Arabia, and Argentina, and discusses the possibility of a new payment system and currency backed by gold.
The BRICS, a bloc of emerging market nations, has expanded its membership to include Saudi Arabia, Iran, Egypt, Argentina, Ethiopia, and the United Arab Emirates (UAE), with the goal of building a fair, just, inclusive, and prosperous world; however, experts question whether BRICS can effectively compete with the West given their differing priorities, and the ambition of creating a common BRICS currency to rival the dollar is unlikely to materialize due to competing interests and priorities among member states.
The BRICS summit focused on increasing the use of local currencies for trade, but there were no discussions about a digital currency; however, three non-BRICS countries also announced plans to use local currencies instead of the dollar for cross-border trade.
BRICS is considering making local currencies the only accepted form of payment for oil and gas settlements, which could potentially shift global power from the West to the East.
The BRICS nations are divided on the issue of de-dollarization, as statements from the bloc's leaders indicated, despite discussions about the creation of a common currency to rival the US dollar.
The dollar is not likely to lose its status as the global reserve currency despite the expansion of the BRICS group of nations and their aim to find an alternative, as technology and not commodity-based currencies are expected to be the driving force in the future.
JP Morgan predicts that the U.S. dollar is at risk of losing its global reserve status as BRICS countries increase their use of local currencies for trade settlement, although the chances of this happening in the near future are slim.
The BRICS alliance is considering the creation of a 'single unit account' as an alternative currency to the US dollar, in order to settle cross-border transactions without depending on a single currency or local currencies.
The BRICS bloc, including countries like India, China, and Russia, is slowly reducing its dependency on the US dollar and using their local currencies for trade, which could potentially weaken the US dollar's position as the dominant global currency.
The BRICS coalition, along with new members, aims to reduce the dominance of the US dollar by using their own currencies for oil trade, posing potential risks to the US's global leadership and economy.
BRICS countries are reducing their ties with the U.S. Treasury by selling off Treasury bonds, opting instead for gold, local currencies, and commodities like oil and gas, in order to hedge against U.S. economic policies that may limit the dollar's ability to fund its deficit. Data shows that BRICS has already offloaded $18.9 billion in U.S. Treasury bonds this month, with China leading the way by selling $117.4 billion worth of U.S. government debt this year. Other BRICS members, including Brazil, India, and the UAE, have also decreased their U.S. Treasury holdings. In total, BRICS has removed $122.7 billion worth of U.S. Treasury bonds in 2023.
BRICS is reportedly considering the launch of a global payments system that could bypass SWIFT, in an effort to reduce ties to the West and strengthen trade in local currencies.
Bitcoin and gold are expected to thrive amidst fiscal problems in the US economy and a potential pivot from the Federal Reserve, according to macro investor Luke Gromen. Gromen also suggests that the launch of a gold-backed currency by the BRICS alliance may weaken the US dollar as the world's reserve currency.
The BRICS group is considering the idea of a common currency, but one expert believes it is unlikely to happen due to tensions between China and India.
The American banking, trade, forex, tourism, and other sectors could be severely impacted if BRICS countries stop using the U.S. dollar for trade, leading to potential financial catastrophe and hyperinflation.
The BRICS New Development Bank has announced a 3-year de-dollarization plan to increase local currency transactions and reduce reliance on the US dollar for developing country investments, aligning with the alliance's strategy to move away from the dollar. Additionally, the bank's expansion may greatly affect its lending model and facilitate the alignment with the alliance's strategy.
BRICS (Brazil, Russia, India, China, South Africa) is aiming to challenge the global reserve status of the US dollar by exerting control over a significant portion of the oil sector, starting with Russia's Gazprom Neft announcing that it will no longer rely on the US dollar for trade and is open to accepting local currencies.
BRICS countries, including China, Brazil, and Saudi Arabia, sold a total of $17.4 billion in U.S. treasuries in September 2023 to prevent the dollar from rising against local currencies and weakening commodities, such as gold and oil.