- ING Bank analysts predict that the BRICS summit in Johannesburg may accelerate the global trend of de-dollarization.
- Amidst ambiguous talks of a common BRICS currency, the Chinese yuan is gaining traction as a potential alternative to the U.S. dollar in bilateral trade.
The Global Shift: De-Dollarization Gains Momentum
The recent trajectory towards global de-dollarization, a move away from U.S. dollar dominance in international trade, may receive a significant boost, according to experts at ING Bank. They highlight the forthcoming BRICS summit in Johannesburg as a key event, where the potential expansion of member countries could be a game-changer in the world’s financial landscape.
BRICS Bloc: A New Order?
The BRICS association, encompassing Brazil, Russia, India, China, and South Africa, has been at the forefront of the de-dollarization movement. As per a recent analysis from ING Bank, penned by analysts Chris Turner, Dmitry Dolgin, and James Wilson, this summit could hold substantial importance for the global monetary order. The analysts remarked,
“We suspect the subject of ‘de-dollarization’ might gain some traction this summer when senior leaders of the BRICS nations meet.”
With nations such as Saudi Arabia expressing interest in joining the BRICS bloc and others like Argentina and Venezuela, undergoing economic challenges, seeking membership, discussions about the group’s expansion are inevitable. However, the framework for onboarding new members is still nebulous. Brazilian President Luiz Inacio Lula da Silva, however, assures that this topic will be on the summit’s agenda.
The Rising Star: Chinese Yuan
While discussions around a unified BRICS currency persist, with ambiguous stances from officials, the ING analysts underline the Chinese yuan’s burgeoning role in this de-dollarization narrative. The yuan, benefiting from China’s leadership within the bloc, has started featuring prominently in bilateral trade agreements among the BRICS nations.
Concrete examples of this shift include Brazil and Russia leveraging the Chinese yuan for trade settlements with China. Notably, Indian oil refineries have also transitioned to the yuan for settling Russian oil imports.
The ING analysts elucidated,
“De-dollarization is seen mainly in the central banks’ international reserves, as the dollar is being pushed out by a variety of currencies, including the yuan.”
They also highlighted a broader shift where the U.S. dollar appears to be increasingly replaced by Asian currencies, particularly the Chinese yuan and Japanese yen.
Nevertheless, the analysis also pinpoints certain hurdles for the yuan, emphasizing its limited appeal to bond investors due to liquidity constraints and potential concerns about capital controls.
