Consumed largely by recent US political news – the assassination attempt on Donald Trump and Joe Biden stepping down from the presidential race – it has been easy to overlook other important developments that can impact an investors’ big picture. One of those is the threat of de-dollarization, as US sanctions on Russia continue to make the BRICS countries, as well as others, wary of being hand-cuffed to the US dollar.

You’ve heard the phrase “missing the forest for the trees”: your focus is so much on detail that you forget to see the bigger picture? When it comes to the BRICS countries and their efforts to cut their reliance on the US dollar, threatening the acceleration of de-dollarization, it feels a bit like we’ve been “missing the trees for the forest”.

Russia and India recently announced a cooperation that will integrate Russia’s MIR payment system with India’s RuPay system to allow for seamless, cross-border transactions…without any need for US dollars. This cooperation came as Russia’s president Vladimir Putin and India’s PM Narendra Modi met in Moscow for a two-day summit, where they also set a goal of $100 billion in trade turnover between the two countries by 2030.

The CEO of Russia’s VTB Bank, Andrey Kostin, was quoted as saying after the agreement was made, “We (BRICS) must develop our own settlement system that includes the global south enabling us to conduct transactions in our own national currencies and not the US dollar”.

This news came quickly on the heels of Russia and Iran reportedly having inked their first bilateral monetary agreement for an integration of their payment systems, announced by Iran’s central bank governor earlier this month. Russia’s same MIR payment system has now been linked to Iran’s Shetab system, allowing Iranians to withdraw money from Russian ATMs with Iranian bank cards and vice-versa.

And, while we recently learned in May that China’s Cross Border Interbank Payment System, “CIPS”, which settles international transactions in Chinese yuan (RMB) now counts over 1,500 banks and financial institutions worldwide as participants, China has also recently launched their first real-trade service of a multi-central bank digital currency (m-CBDC). China clearly continues to push their hat further into the ring of USD alternatives.

It is quite evident that the BRICs countries (currently comprised of Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates), as well as others, may be moving away from the idea of shared currency in favor of cross-border payment services in their attempts to circumvent the reliance on the dollar and US dominance in international banking. Either way, these latest actions will only serve to move de-dollarization along.

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We invite you to have a look back at our Special Report from 2023, Deeper into the New Era – Navigating the Shifts & Turning Points Ahead, under “Recalibrating to a Multi-Polar World” on page 9. Despite being a just over a year old, the content is still very current regarding the influence of BRICS and the potential effects and threats of a de-dollarization.

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In any case, de-dollarization still won’t likely happen overnight. In a recent report from the Atlantic Council’s GeoEconomics Center, the report said “the dollar continues to dominate foreign reserve holdings, trade invoicing, and currency transactions globally. All potential rivals, including the euro, have a limited ability to challenge the dollar in the immediate future.” The report went on to say that the US dollar’s role as world reserve currency remains safe, at least for the short- and medium- term.

Still, Russia holds the BRICS’ rotating chairmanship for 2024, which will culminate in a summit in October, potentially the next point at which there could be more news on the de-dollarization effort. And, while we’ve focused here on news coming from the BRICS countries, de-dollarization can also happen as a result of an undermining of the perceived safety and stability of the US dollar, which could ultimately even come through self-infliction by the U.S.

So, while we get closer to the U.S. elections, while we wonder about inflation, while we guess when the Fed will move on interest rates, and while we hope for an end to ongoing wars, don’t lose sight of BRICS and the threat of de-dollarization. If it were to happen completely, there would be a shift in the balance of power amongst countries which would surely alter the global economy.

The full impact this would have on the US and the rest of the world is ultimately hard to predict. What is certain however, is that it would be a massive change to how the world has functioned for decades, requiring us as investors to change how we manage, allocate and protect our assets.

These are exactly the types of events BFI follows and plans for in our services. We’ll be sure not to lose sight, and follow-up in a coming post with exactly the types of things you can do to prepare for such events.

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