What can we expect from the BRICS in the next meeting

The BRICS bloc, led by Russia as its current chair, is pushing to establish a new global financial system that challenges Western dominance. Russian Finance Minister Anton Siluanov has called for the creation of an alternative to the International Monetary Fund (IMF) and World Bank, saying these institutions no longer serve the interests of BRICS countries, which together make up 37% of the global economy. Russia's move is in response to Western sanctions that have frozen its foreign reserves and cut it off from global financial markets.

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WHAT CAN WE EXPECT FROM THE BRICS IN THE NEXT MEETING?

BRICS Push for New Financial Institutions

At a recent meeting with BRICS finance ministers and central bank officials, Siluanov argued that the global financial system is controlled by the West, and it’s time for BRICS to create new institutions, similar to the IMF and World Bank, but tailored to their needs. This comes after Russia’s financial system was hit hard by sanctions. Russian President Vladimir Putin also supports the idea of building a new international financial framework with BRICS allies, as part of his broader vision of a new world order.

Russia’s Vision for a Multipolar World

Putin has expressed that Russia is open to discussions with its partners on building a multipolar world, where power isn’t concentrated in the hands of Western nations. He emphasized this vision at an international forum and invited leaders, including those from the Commonwealth of Independent States (CIS), to the upcoming BRICS summit in Kazan.

Iran Seeks Closer Ties with Russia

Iran is looking to strengthen its partnership with Russia, with plans to sign a comprehensive strategic partnership treaty during the BRICS summit. Iranian President Masoud Pezeshkian highlighted the strong alignment between Iran and Russia on global issues, especially as tensions rise between Iran and Western nations like the U.S. and Israel.

BRICS Expansion and Growing Influence

BRICS is not just limited to its five founding members. Russia is expanding the bloc’s reach, having invited 38 countries to the BRICS summit, with 32 already confirming their participation. This includes nations from Africa, Latin America, the Middle East, and Southeast Asia. Russia aims to grow BRICS into a key pillar of the emerging multipolar world, where nations work together on principles of sovereignty and mutual respect.

Increasing Trade in National Currencies

One of the main objectives for BRICS this year is to reduce reliance on the U.S. dollar and euro in trade. Russia and its BRICS partners are increasingly using national currencies for transactions, with nearly two-thirds of payments now being made in currencies like the ruble. This shift towards “de-dollarization” is part of BRICS’ strategy to strengthen economic independence from Western financial systems.

HOW WILL THIS AFFECT THE US DOLLAR?

The efforts by the BRICS bloc, particularly under Russia’s leadership, to establish an alternative to the International Monetary Fund (IMF) and push for a new world order have profound implications for America in several areas:

Economic Influence and the Dollar’s Dominance

The U.S. dollar’s status as the world’s reserve currency gives the U.S. significant economic leverage, including the ability to impose sanctions effectively. The push towards de-dollarization by BRICS, as seen in their discussions and actions to increase trade in national currencies, could erode this dominance. If successful, this would reduce America’s ability to use the dollar as a tool of foreign policy, potentially weakening its geopolitical influence. The decline in the use of the dollar for international transactions to less than 30% within BRICS, as mentioned, is a significant indicator of this shift.

Global Financial Architecture

The creation of new financial institutions or mechanisms within BRICS could challenge the existing global financial architecture dominated by Western institutions like the IMF and World Bank. If these new institutions gain credibility and support, they might attract more countries, particularly from the Global South, reducing the influence of Western-led financial governance. This could lead to a more multipolar financial world, where American economic policies might not set the global standard.

Sanctions Effectiveness

The West, particularly the U.S., has used financial sanctions as a primary tool against countries like Russia. An alternative financial system could provide countries a refuge from these sanctions, diminishing their effectiveness. This might encourage more nations to resist or ignore U.S. sanctions, reducing America’s ability to enforce its foreign policy objectives through economic means.

Geopolitical Alliances

The expansion of BRICS and its vision of a multipolar world could lead more countries to align with this bloc, either as members or through economic partnerships, seeking an alternative to the U.S.-led international order. This shift could isolate the U.S. and its traditional allies, affecting American foreign policy dynamics and alliances, particularly if major powers like China and Russia continue to gain influence in regions like Asia, Africa, and the Middle East.

Technological and Trade Dependencies

With countries moving away from Western-dominated financial systems, there might be a parallel shift towards creating or joining alternative technological and trade ecosystems. This could affect American tech companies and trade, potentially leading to a world where technology standards, data governance, and trade agreements are less influenced by the U.S.

Security Implications

Economic power often translates into military and strategic influence. A diminished economic role for the U.S. could eventually affect its military posture worldwide if allies and partners start to hedge their bets or reduce their reliance on American security guarantees due to shifting economic realities.

Domestic Policy Adjustments

Internally, the U.S. might need to adjust its economic and fiscal policies to adapt to a world where the dollar’s dominance is contested. This could involve more aggressive economic policies to protect industries, innovations in financial technology, or even aligning more closely with regional blocs like the EU or Pacific alliances to counterbalance the BRICS influence.

The overarching theme here is a potential shift towards a multipolar world where the U.S. is one of several major powers rather than the dominant one. This scenario requires America to rethink its strategies in economic diplomacy, international relations, and possibly its approach to global governance to maintain or regain influence.

HOW CAN AMERICANS PREPARE?

One way to prepare for this is through currency hedging.

Currency hedging using cryptocurrency involves using digital currencies to offset the risk of currency fluctuations, particularly against a weakening dollar or other currencies. Here’s how you can approach currency hedging with crypto:

Direct Conversion

Convert your holdings into cryptocurrencies like Bitcoin or Ethereum, which are considered by some as “digital gold” due to their perceived store of value. Unlike traditional currencies, Bitcoin’s supply is capped, which can make it a hedge against inflation or currency devaluation. By converting your currency into Bitcoin, you’re betting that Bitcoin’s value will either remain stable or appreciate against your local currency.

Stablecoins

These are cryptocurrencies pegged to the value of a fiat currency, like the US Dollar. Examples include USDT (Tether), USDC (USD Coin), and DAI. If you’re worried about your local currency depreciating against the dollar, holding your wealth in these stablecoins can act as a hedge. However, this approach requires trust in the stability of the dollar or the backing mechanism of these coins.

Crypto Futures and Options

Trading futures contracts or options on cryptocurrencies like Bitcoin can be used for hedging. If you expect your local currency to depreciate, you might buy a futures contract for Bitcoin, betting that Bitcoin’s price will rise in your currency terms. If you’re worried about a potential drop in Bitcoin’s value, you could sell futures (short position) to hedge against your spot market holdings.

Decentralized Finance (DeFi)

Platforms like Aave, Compound, or MakerDAO allow you to use your cryptocurrencies as collateral to borrow against, often in stablecoins. This way, you maintain your crypto position but shield part of your wealth from crypto volatility by converting borrowed funds back into your local currency or another asset.
Crypto ETFs or Funds: While not directly hedging through crypto, investing in crypto ETFs or funds (if available in your jurisdiction) that track a basket of cryptocurrencies could diversify your investment away from single currency risk. These funds might hedge internally by holding various assets or using derivatives.

When engaging in these strategies:

Understand the Market: Crypto markets can be more volatile than traditional markets. Knowledge of how crypto prices move relative to traditional currency pairs is crucial.
Liquidity and Costs: Check the liquidity of the crypto markets you’re entering. Also, consider transaction fees, which can be higher in crypto than in traditional financial markets.
Regulation and Legality: Ensure compliance with local regulations regarding cryptocurrency trading, especially for futures and options, which might be more regulated.
Risk Management: Always remember, while crypto can offer hedging opportunities, it also comes with unique risks like hacking, regulatory changes, and the intrinsic volatility of crypto assets.