BRICS countries could swing an ‘economic wrecking ball’ at dollar dominance even without a shared trade currency, former White House economist says

• BRICS countries could swing an “economic wrecking ball” at the dollar, a former White House economist says.

• The bloc has growing power and influence in global trade as it adds new members.

• The US dollar could soon be in the same position as the British pound in the 1800s, he said.

The dollar could face a growing challenge from BRICS countries, thanks to the bloc’s growing size and influence over global trade, according to former White House economist Joe Sullivan.

In a recent op-ed for Foreign Policy, Sullivan pointed to mounting fears that BRICS nations could create a currency to rival the US dollar in international trade. Such a currency could potentially topple the dollar from its perch atop global trade markets and as the dominant reserve currency.

Though BRICS officials have said there is no such rival currency in the works, the bloc of emerging market countries— which recently extended invites to Argentina, Egypt,Ethiopia, Iran, Saudi Arabia, and United Arab Emirates—could pose a threat to the greenback based on its growing influence, Sullivan warned.

The addition of Egypt, Ethiopia, and Saudi Arabia could give BRICS influence over 12% of all global trade. That’s because those three countries surround the Suez Canal, a key passage for goods to flow into international markets.

Sullivan noted the bloc also has major sway in commodities markets. Saudi Arabia, Iran, and the United Arab Emirates are among the world’s top exporters of fossil fuels. Brazil, China, and Russia, meanwhile, are major exporters of precious metals.

The addition of Saudi Arabia in particular could give BRICS+ a major advantage. The Middle Eastern nation owns over $100 billion in US Treasury bonds, which has helped bring BRICS’ total holdings in US Treasurys over $1 trillion, Sullivan said.

“The BRICS+ nations do not need to wait until a  shared trade currency meets the technical conditions typical of global reserve currency before they swing their newly enlarged economic wrecking ball at the dollar,” he added.

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Sullivan pointed to China’s yuan, which is edging out other global currencies in trade as Beijing’s trading partners ramp up their use of the renminbi.

Eventually, those trends could help put the greenback in a similar position as the British pound, Sullivan warned, which slipped from international dominance in the 1800s.

“The BRICS+ states do not even necessarily need to have a shared trade currency to chip away at King Dollar’s domain. If BRICS+ demanded that you pay each member in its own national currency in order to trade with any of them, the dollar’s role in the world economy would go down. There would not be a clear replacement for the dollar as a global reserve. A variety of currencies would gain in importance,” he said.

Other economists argue though that the dollar’s role as the world’s top trading and reserve currency will likely continue for a long time. The greenback still beats rival currencies in international trade and central bank reserves by a wide margin, data from the Bank of International Settlements and International Monetary Fund show, with the yuan only making small gains recently in central banks’ coffers.

This story was originally published in November 2023.

Read the original article on Business Insider