The BRICS alliance is gaining consensus among emerging countries: about 40 nations are interested in joining, aiming to reduce their dependence on the US dollar and strengthen trade in local currencies.

Let’s see all the details below. 

The role of BRICS in the global reduction of dependence on the US dollar

In recent years, the global financial system has witnessed a growing discontent towards the dominance of the US dollar. 

Various emerging economies are indeed seeking alternatives that can strengthen their economic autonomy and reduce dependence on the US dollar. 

In this context, the alliance BRICS, composed of Brazil, Russia, India, China, and South Africa, represents a potential way out.

Recent reports indicate that around 40 countries, mainly from Asia, Africa, and South America, are considering the possibility of joining the alliance in 2024, with the common goal of freeing themselves from the “clutches” of the dollar.

The dominance of the US dollar, although it represents a source of stability for some economies, is seen as a brake on growth for many others. 

The excessive dependence on a single currency for trade and monetary reserves puts local economies at risk, especially during times of international economic crises or fluctuations in the value of the dollar. 

Developing countries are beginning to perceive the current system as a tool that limits their potential for economic growth.

One of the main objectives of the BRICS alliance is to create an alternative economic system that allows emerging economies to strengthen autonomously. 

The idea of using local currencies for bilateral and multilateral trade is gaining ground, as it allows these nations to avoid the conversion costs associated with the US dollar and to reduce exposure to exchange rate fluctuations. 

In this way, they can allocate more resources to the development of their economies, reducing dependence on the outside.

Possible devaluation of the US dollar and the role of China

David Lubin, senior researcher at the Global Economy and Finance Programme of Chatham House, stated: 

“The only political issue that unites the nine current members of the BRICS and the 40 additional members of the BRICS is the common desire to escape the dominance of the US dollar.”

This sentiment represents one of the main motivations that is driving more and more countries to look with interest at the BRICS.

The de-dollarizzazione, or the progressive reduction of the use of the US dollar in international trade, is one of the priorities for many of the nations involved.

This process could have significant repercussions on numerous economic sectors in the United States, as the reduction in demand for dollars could lead to a devaluation of the currency itself. 

Some studies have already hypothesized that the purchasing power of the dollar could drastically decrease in the coming years, dropping from 3% to zero in some extreme scenarios.

Furthermore, the role of China within the BRICS alliance is particularly crucial. 

Thanks to its dominant position in the global economy and the growing adoption of the yuan in international trade, Beijing could be the main beneficiary of the de-dollarization movement. 

As stated by Charles Chang, expert at S&P Global Ratings:

“I don’t believe that the currencies of smaller economies like the dirham are capable of gaining global scale over time because the trading volume isn’t really there; this is where the renminbi (yuan) has more potential.”

This means that, while many nations are trying to diversify their monetary reserves and international trade, the Chinese yuan could emerge as the main alternative to the US dollar.

The challenges of de-dollarization

The strengthening of the BRICS could lead to greater cooperation among emerging economies. In particular, by facilitating trade and direct investments among them, without having to go through the filter of Western currencies. 

The use of local currencies could represent a competitive advantage for these nations. 

Specifically allowing them to better protect their economies from the fluctuations of international markets and to avoid the risk of depending on external monetary policies.

However, there are still several challenges to face before de-dollarization can truly gain traction on a large scale. 

First of all, many of these countries will need to strengthen their financial infrastructures and adopt policies that make their currencies more stable and reliable. 

Furthermore, the dependence on the dollar cannot be eliminated overnight. It will indeed require time, international cooperation, and a shared vision among the members of the BRICS alliance and their future adherents.

In conclusion, the interest of about 40 countries in joining the BRICS demonstrates that there is a growing awareness among emerging economies about the need to reduce dependence on the US dollar. 

While the process of de-dollarization is still in its early stages, the BRICS represent an increasingly relevant platform for promoting a multipolar economic order, in which local currencies can play a leading role. 

The future could see a progressive shift of the world’s economic center of gravity towards a more balanced and diversified system.