BRICS Local Currency Bonds: A New Threat to the US Dollar?

• De-Dollarization: A Focus for the BRICS Alliance
• New Developments from the BRICS Development Bank
• The Impact of the BRICS Alliance and Local Currency Bonds
• A Further Blow to the US Dollar?
• Government Bonds Encourage Public Spending
• The Implications for the US Dollar
• Economic Diversification throughout 2024

De-Dollarization: A Focus for the BRICS Alliance

Over the past year, the BRICS alliance has concentrated on de-dollarization. This focus arose due to concerns from several countries about sanction implications. These countries have been seeking ways to diversify their economies, and the New Development Bank (NDB) under BRICS has started offering local currency bonds, which could majorly affect the strength of the US Dollar in due time.

New Developments from the BRICS Development Bank

Recently, the BRICS alliance revealed that its development bank would start issuing bonds in local currencies. This shift has the potential to bring about a significant global change, especially as the alliance continues to strengthen its already noticeable position among developing nations.

The Impact of the BRICS Alliance and Local Currency Bonds

In 2023, the BRICS alliance continued to establish itself as a considerable force in geopolitical affairs. Among the nations within its fold that were under sanctions, a new focus emerged - reducing global dependence on the US dollar. This move aimed to lessen the influence that Western nations had over the structure of global finance.

A Further Blow to the US Dollar?

As the year unfolds, the BRICS bloc is taking its focus on de-dollarization even further. Its New Development Bank has expressed its plan to issue more local currency bonds. Specifically, the bank intends to introduce bonds worth $28 billion into the global market.

Government Bonds Encourage Public Spending

Government bonds serve as a means for officials to stimulate public spending. Local currency bonds are not new to the BRICS infrastructure. In fact, the BRICS bank issued its first bond in South African rands last August. It later sought to issue Indian rupee bonds towards the end of the previous year. As a result, the bond market has become an effective method to promote de-dollarization.

The Implications for the US Dollar

Traditionally, international bonds have been issued primarily in the US dollar. This practice provided investors a safe haven due to the established strength of the dollar. However, local currency bonds are shaking up this norm. Not only have these bonds broadened the options available to the global market, but they are also representing a shift in perspective towards what currencies countries aim to acquire.

Economic Diversification throughout 2024

It's no secret that countries worldwide have been moving towards economic diversification over the past year, and this trend is likely to continue throughout 2024. Given the concerning economic conditions in the United States, these developments could continue to affect the standing of the greenback and the scale of global local currency holdings.

Edited by Jonathan Stoker