In recent years, there has been growing speculation about the potential erosion of the US dollar’s status as the world’s primary reserve currency. The Bank of New York Mellon has shared its perspective on why the expansion of the BRICS economic alliance is unlikely to challenge the US dollar’s supremacy as the world’s primary reserve currency. According to an analyst from the investment bank on USD global reserve status. “Our view is that the pivotal factor influencing the dollar’s role in the coming decade revolves more around technology than anything else.”
BNY Mellon’s Perspective on the Prevalence of the US Dollar
In a recent note, The Bank of New York Mellon Corp. (BNY Mellon) asserted that the USD global reserve status as the global reserve currency is unlikely to be diminished, even with the expansion of the BRICS economic bloc. The BRICS group of Brazil, Russia, India, China, and South Africa recently extended invitations to six additional nations – Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE) – to join their alliance.
Bob Savage, who serves as the head of market strategy at BNY Mellon, expressed scepticism regarding the BRICS group’s ability to replace the US dollar. He highlighted that one of the primary objectives of the BRICS nations is to seek an alternative to the USD, stating:
“The USD is unlikely to lose its global reserve status anytime soon … new currency unions should look to technology or green baskets, rather than gold- or carbon-based ones.”
BRICS Leaders Push for Reduced Reliance on US Dollar in International Transactions
In their recent summit, the BRICS leaders reached a consensus to promote the utilisation of their respective domestic currencies in international trade and financial dealings, aiming to decrease dependence on the US dollar.
As per BNY Mellon’s analysis, the inclusion of Iran, the UAE, Egypt, and Saudi Arabia in the expanded BRICS group would significantly bolster its influence in energy exports, particularly in the oil sector. This development raises the possibility that the economic bloc might consider introducing a commodity basket supported by gold and oil, observed the BNY Mellon analyst.
Savage added, “The inclusion of the UAE and Saudi Arabia enhances per capita GDP and economic influence, yet it may pose challenges regarding the broader, long-term transition from carbon-based energy sources to sustainable alternatives.” He further underscored: “We think the most important factor for dollar use into the next decade revolves around technology instead – specifically high-end computer chips. “
BRICS Expansion: A Dual-edged Sword in the Energy Landscape and Currency Dynamics
The addition of energy-exporting powerhouses like the UAE and Saudi Arabia to the BRICS group does enhance their economic clout. However, it also presents challenges, particularly concerning the global shift toward sustainable energy sources.
In essence, while the BRICS alliance’s expansion is noteworthy, it does not appear to pose an imminent threat to the US dollar’s global reserve currency status. Instead, the ongoing evolution of technology and the changing landscape of global finance may play more pivotal roles in shaping the currency landscape in the coming decade. As such, the US dollar’s reign as the world’s primary reserve currency appears secure for the foreseeable future.
While the BRICS economic alliance has expanded its reach by inviting new members such as Iran, the UAE, Egypt, and Saudi Arabia, the dominance of the US dollar as the global reserve currency remains steadfast, according to insights from BNY Mellon. Despite the BRICS leaders’ aspirations to promote the use of their local currencies in international trade and reduce reliance on the US dollar, several factors continue to support the greenback’s preeminence. The USD global reserve status, historical stability, the sheer size and resilience of the US economy, its deep and liquid financial markets, and its widespread use in global trade all contribute to its continued dominance. Moreover, the absence of a compelling alternative currency on the international stage and the network effect further bolster the US dollar’s position.
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