By James Chittenden
BRICS is an economic and political alliance between several countries that seeks to create a new currency while ending the worldwide dominance of the U.S. dollar. BRICS, which is shorthand for Brazil, Russia, India, China, and South Africa, has formed this alliance to increase their economic power while limiting the ability of the United States to impose meaningful economic sanctions against members. It may or may not affect U.S. businesses. However, in some cases, BRICS may help your business in the U.S.
BRICS-member nations intend to create a currency, good for commerce among member nations and around the world. It is similar in nature to the euro, which is the currency of members of the European Union (EU). BRICS currency may be traditional or digital.
BRICS and its implications for U.S. businesses is more fully explained in, “How BRICS may threaten your business in the U.S.”
How is BRICS a threat?
The hazard that BRICS presents is “de-dollarization”, or the U.S. dollar losing its status as the world’s reserve currency. Merchants all over the world normally accept payment in U.S. dollars because they are generally stable and easily traded for other currencies. They are the financial mainstream of the world.
This allows Americans to travel and do business globally with relative ease compared with citizens from other countries. U.S. dollars buy imports of everything from clothes, electronics, and oil, and if the dollar is strong, these imports become more affordable for American consumers and businesses.
If the U.S. dollar becomes worth less, that certainly hurts some businesses. But a weaker dollar is great news for other businesses.
What U.S. sectors could BRICS help?
Manufacturing
Manufacturing jobs have been leaving the United States since the late 20th century. Lower wages in other countries such as China or Mexico resulted in American manufacturers to shift production to those countries. However, labor and production costs have risen in those countries as a result, eroding the cost savings to U.S. manufacturers. BRICS will likely lower the value of the dollar at least in the short term, making re-shoring manufacturing back to America even more attractive. Many items that were manufactured overseas will be made in the USA once again. Therefore, BRICS may help your business or sector.
Exporting
A strong dollar has been good for imports. A weaker dollar is good for exports. No matter what the American-made products are; food, machinery, clothing, or electronics, they will be less expensive overseas. There will be new customers in other countries happy to buy American, especially if products made in Asia become more expensive without increasing quality. If you are looking to export, BRICS may help your business.
Tourism
Look for American theme parks, beaches, resorts, and other tourist destinations to host more international guests. They will have more money to spend, which will attract them to the United States. Therefore, if you are in tourism, BRICS may help your business.
Foreign Investment
The same market forces that bring more foreign money and tourists to the United States will certainly bring more foreign capital to the United States. The U.S. remains at or near the top of the list of destinations for immigrants. A recent study explains the reasons for that.
Most immigrants – regardless of where they came from or how long they’ve been in the U.S. – say they came to the U.S. for more opportunities for themselves and their children. The predominant reasons immigrants say they came to the U.S. are for better work and educational opportunities, a better future for their children, and more rights and freedoms. Smaller but still sizeable shares cite other factors such as joining family members or escaping unsafe or violent conditions.
kff.org
Additionally, the United States maintains several immigration pathways to attract entrepreneurs and investors from overseas. Demand for those visas would certainly increase with a weaker dollar, assuming there are no changes to conditions in countries that immigrants normally leave to come to the U.S. Those countries do include BRICS countries.
How BRICS could fail
BRICS is an economic alliance, with many different countries joining for their own interests. These include democracies such as India and Brazil, they include Communist states such as China, theocracies such as Saudi Arabia and Iran, and other diverse countries and people. In the end, that may be the undoing or at least weakening of the BRICS alliance. India will not want to be dominated by Russia or China, Iran will not want to submit to Saudi Arabia.
The BRICS currency will be backed by a basket of currencies of member countries. Or it could be eventually backed by commodities such as gold or oil. Look for member countries with the largest reserves of currencies or commodities to dominate the ones that don’t.
Countries will cheat the alliance, just as OPEC oil cartel members cheat the cartel. For example, OPEC member nations may agree to cut production to keep prices high. It won’t be long before someone in the membership is tempted by high prices to sneak some more oil into the market for sale. The increase in supply lowers the prices.
Similarly, BRICS members will find themselves tempted to sell BRICS currency and use dollars, euro, or yen instead when it makes economic sense.
As with any economic change, the secret is to anticipate it and pivot accordingly. BRICS may help your business. If the U.S. dollar becomes weaker, don’t regard it as good or bad. Instead, find ways to use it to your advantage.
Stick with us. We will show you how.
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