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What if the U.S. dollar was no longer the world's dominant currency?

By James Chittenden

The U.S. dollar is the world’s dominant currency, at least for now. For the first time in recent memory, the U.S. dollar is in danger of losing its status as the world’s dominant currency. For those who don’t know what BRICS is, it is both an economic and geopolitical alliance and it is shorthand for Brazil, Russia, India, China, and South Africa.

What does reserve currency mean?

The dollar is the dominant, or reserve currency, which simply means that it is preferred for purchases all over the world. That means that dollars are in demand all over the world. Businesses, governments, and even individuals are happy to trade their pesos or whatever their currency is for dollars so that they can do business with the world more easily. 

Dollars are the financial mainstream of the world. They are currently far more valuable that Russian rubles, Chinese yuan, Indian rupees, or most other currencies. However, dollars may or may not be more valuable than euro, Japanese yen, and Canadian dollars. Those currencies come from the advanced economies. The Group of Seven (G7) is an intergovernmental political and economic alliance consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union (EU) is a “non-enumerated member”. 

So, the U.S. dollar is in wide demand as the world’s reserve currency. This has several benefits to Americans. The demand for the dollar makes it stronger, so Americans who travel overseas or buy imported goods enjoy more bang for the buck. Americans get a better deal hiring overseas, outsourcing overseas, importing from overseas, investing overseas, and going overseas. Those are the benefits to Americans of the U.S. dollar as the world’s dominant currency.

A dominant dollar meant that, until very recently, nearly 100 percent of global oil trades were made in U.S. dollars.

Why BRICS?

Because the dollar has such status, the U.S. government is in a position to use dollars to force foreign policy results it wants. Leading BRICS nations such as Russia and China have faced a variety of U.S. economic sanctions.

Sanctions restrict trade and financial transactions between U.S. citizens and businesses and the countries being sanctioned. They include asset freezes, financial restrictions, trade barriers, travel bans, and other measures.

Current Examples of Sanctions

In response to the Russian/Ukrainian war, Russia’s foreign currency reserves totaling $350 billion have been frozen. The U.S. and the E.U. have banned imports of gold and diamonds from Russia, as well as Russian oil and natural gas. They have also seized yachts from wealthy Russians. All told, the US, UK and EU, along with countries including Australia, Canada and Japan, have imposed more than 16,500 sanctions on Russia.

The U.S. maintains sanctions against China such as bans of certain companies from China against entering the American market. U.S. investment in companies that are designated “Communist Chinese military companies” is prohibited. Products of certain semiconductor manufacturers are banned in the U.S. In all, hundreds of Chinese businesses, organizations, and individuals have been added to a “entity list” that restricts their ability to purchase goods from the United States.

There are countless examples of sanctions, and sanctions are one of many reasons other countries want to weaken demand for the U.S. dollar.

What U.S. sectors could BRICS harm?

Banking and Finance

If the U.S. dollar becomes less widely accepted throughout the world, it becomes worth less. If other countries are less willing or unwilling to accept U.S. dollars as payment, then dollars will return to the United States, flooding the economy. The result is inflation. 

Inflation leads to higher interest rates, as the Federal Reserve looks to decrease the supply of dollars. For a time, businesses and consumers will contend with increased prices and costs of borrowing. 

Banks will face a higher rate of defaults on loans, mortgages, and credit cards. As a result, they will tighten credit requirements for borrowers. 

Technology

U.S. consumers will lose jobs, which harms the technology sector. Multinational companies will contend with increased costs overseas, which will dampen research and development. It will also lead to job cuts of overseas talent. 

Components from overseas will become more expensive. 

Consumers

Consumers who enjoy imported cars, food, clothing, or other products should expect to pay a great deal more for them if BRICS currency becomes the world’s dominant currency.

In conclusion…

As with any economic change, the secret is to anticipate it and pivot accordingly. BRICS could actually 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.

And finally…

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Operations, because it keeps your customers. A well-run business pleases customers and generates steady and reliable revenue. But to be well-run, you need reliable providers

Finance, because it is the scoreboard, and keeps everybody paid. Change the “score”, find bookkeeping help, and find capital

The One Click Advisor Business Builder connects you with all the fundamentals. Skip the hours of research and costly mistakes…we have done the work of locating the best small business services for you.