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From Dollar Monopoly to BRICS Diversification: A New Economic Era?

2024-11-04 03:45:34.244000

The competition between the G7 and BRICS alliance to challenge the US dollar's dominance continues to intensify. Central Banks of BRICS and other developing countries, including several African nations, are actively diversifying their reserves by buying more gold and reducing their holdings of the US dollar. Countries such as Zimbabwe, Madagascar, Nigeria, Tanzania, Uganda, and South Sudan have taken steps to increase their gold reserves to protect themselves from currency losses and the risks associated with the growing US government debt. The Central Bank of Uganda has unveiled a program to purchase gold from local artisanal miners, while the Tanzanian government plans to spend $400 million to purchase six tonnes of gold and limit the use of the US dollar within the country. Nigeria is also planning to purchase gold domestically to increase state reserves. This shift in reserves is seen as a strategic move to decrease reliance on the US dollar and strengthen local currencies and native economies of developing countries [abb3ce91] [a3049c1a].

In a recent analysis, economist Mohamed El-Erian warned that the US dollar is losing its dominance as foreign central banks are increasingly buying fewer Treasury securities and holding more gold. This de-dollarization trend is particularly driven by nations in the Global South, especially within the BRICS alliance. El-Erian noted that the price of gold has risen 40% in the past year, reflecting a growing preference for gold over the dollar among these countries. He highlighted that foreign ownership of US Treasury securities has fallen from 34% in 2015 to about 23-24% in 2024, with China's holdings dropping from over $1.3 trillion in 2014 to less than $800 billion in 2024. This shift is attributed to the US's weaponization of trade and sanctions, which have contributed to the growing skepticism towards the dollar [d0b69fd2].

The push for diversification of world currency reserves has intensified since the 2008 financial crisis and escalated post-2022, particularly highlighted by the recent BRICS Summit in Kazan, Russia. The BRICS group has expanded to include Iran, Egypt, Ethiopia, and the UAE, with Saudi Arabia invited to join, and Turkey applying for membership in September 2024. Nearly 50 countries have expressed interest in joining BRICS, signaling a shift in global economic dynamics. While the US dollar remains dominant in global trade, its weaponization raises concerns among both Global South and Western economies. Since BRICS' inception in July 2009, gold prices have surged from $953 to nearly $2,740 per ounce, reflecting the bloc's impact on global economic strategies [31147a47].

Several African countries, including Nigeria, Uganda, Zimbabwe, Tanzania, South Sudan, and Madagascar, are increasing their gold reserves and purchasing gold domestically due to concerns over the stability of the US financial system and the weaponization of the US dollar. The move is driven by rising inflation, escalating debt levels, and geopolitical tensions. South Sudan, Uganda, Tanzania, Nigeria, and Madagascar have implemented strategies to boost their gold reserves, including launching domestic gold-buying programs and repatriating existing gold reserves. Ghana and Zimbabwe have proposed backing their national currencies with gold. Economic analysts suggest that these strategies are a response to domestic economic issues and a precaution against potential future risks, such as a rise in gold prices or a decline in the value of the US dollar. African leaders and central bankers are also concerned about the weaponization of the dollar and other risks associated with the greenback, including profligate spending and growing national debt. This trend of BRICS countries and African nations reducing their US dollar holdings and increasing their gold reserves is part of a broader de-dollarization movement. Central Banks are seeking to diversify their reserves away from the US dollar to reduce their vulnerability to economic and geopolitical risks associated with the currency. As Central Banks hold less US dollars and more gold, it could lead to a decline in the US dollar's status as a reserve asset. This could potentially weaken the dominance of the US dollar and strengthen local currencies, particularly in developing countries. The move towards de-dollarization aligns with the BRICS alliance's goal of challenging the US dollar's hegemony and creating a more multipolar global financial system [abb3ce91] [a3049c1a].

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