LAGOS – Analysts are of diverse opinion on the threat by the BRICS countries earlier this year to dethrone the US dollar from the global reserve currency status.
Established in 2009 as an informal alliance, the BRICS group, which was initiated by Russia is aimed at providing a platform for its members to counter the dominance of the United States and its Western allies in the global order.
The rationale for the expansion of the alliance lies in the quest for alternative arrangements to the existing global power balance, as stated by South African Foreign Minister Naledi Pandor.
Pandor, emphasised that collectively, the BRICS countries lay claim to 42% of the world’s population, 30% of the global landmass, and 24%of the global economic output.
A financial expert, who craves anonymity, in chats with Daily Independent, said nobody should take BRICS ideals seriously as most countries involved are adversely affected by the realities of global financial challenges, and so cannot do without the dollars
The analysts , however, said: “The global underlying inflation, is proving more stubborn than headline inflation, which includes energy, food, and other more volatile items.
“Bringing it back to target, durably, without the dollars would entrenched distortionary high inflation in BRICS countries
“Moreover, prolonged inflation means prolonged high real interest rates, which would hurt private and public investment and therefore future growth in the BRICS countries
“A close look at 100 inflation episodes worldwide, history is littered with examples of premature celebrations of victory in disinflationary fights each time with inflation making a comeback.
“This is a costly mistake that BRICS can, and must avoid as price stability needs to be re-established in the first attempt to avoid collapsed economies. And as the effects of tighter monetary policies begin to be felt across BRICS, and as criticism inevitably mounts, central banks must not blink.
“Fiscal policymakers can, and should help by lowering still-high deficits to rebuild or preserve fiscal buffers, which will help bring inflation down faster to be able to change the global financial dynamics one step at a time”.
But, another financial expert, who also crave anonymity has it that the BRICS may slowly chips away us dollar’s global dominance with recent moves by China to convince a handful of developing countries to settle trade in the Chinese Yuan and not the US dollar.
“The development will put the US dollar under pressure if countries begin to use their local currencies for cross-border transactions.
“A total of 10 financial sectors which include: global financial system, banking and finance, energy and commodity markets, internatiomal markets, consumer goods and retail, production and consumption, techtional trade and investment, capital nology and fintech, government and policy, travel and tourism in the U.S. will be affected if BRICS uses local currencies and not the U.S. dollar.
“Moreover, all the 10 sectors are closely linked to the U.S. economy and could have complications if the dollar loses demand.
“The banking sector could take the first hit that might eventually spill over to the markets.
“Once the financial markets are hit, the domino effect could roll over to all sectors leading to a financial catastrophe, and if the U.S. fails to fund its deficit, prices of all commodities could skyrocket or even reach hyperinflation”.
The analysts noted that the Xi Jinping-led administration is on a world tour urging developing nations to strengthen their local currencies and cut ties with the US dollar.
“China is successful in its quest as Russia, India, Pakistan, Saudi Arabia, and other nations settled trade in local currencies.
“African nations are now coming forward giving statements indicating the need to strengthen their native economies.
“Kenya, Nigeria, and other nations in Africa are on the sidelines and could follow the de-dollarization trend kick-started by BRICS.
“As years pass by, BRICS will sign more trade agreements adding new countries to settle payments in local currencies.
“While they’re not attacking the US dollar upfront, they are moving in stealth and pulling the carpet under America’s feet”, adding that time will tell if the BRICS de-dollarization can change global financial dynamics, the analysts said.
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