If you’re sitting on a stack of dollars, you might have caught the buzz about countries like China and Russia plotting a “Game of Thrones”-style overthrow of the dollar’s reign as the global reserve currency. Bit dramatic, right?
A couple of weeks back, the BRICS (Brazil, Russia, India, China, and South Africa), dropped a bombshell: They’re cooking up their own currency for international trading, giving the dollar the cold shoulder.
Since then, dollar-holders have been buzzing like bees in a soda can. Can these countries really topple the dollar’s throne? Should I bail on the dollar and join Team Yuan instead?
Hold onto your hats, folks, ’cause we’re about to dive into this spicy bowl of currency soup and answer all these burning questions. Ready to take the plunge? Let’s get started!
The Dollar’s Reign: How Did We Get Here?
Before we answer the big question, it’s important to understand how the dollar became so valuable.
Basically, the dollar has been the world’s reserve currency since 1944. This status means that most international trade is settled in the dollar – you can use the currency to pay for imports in almost any country, meaning that the demand for the dollar will always be high.
- Today, central banks around the world hold 59% of their bank reserves in U.S dollars.
- About 50% of all global trade is also settled in the dollar.
- And, about 90% of all foreign exchange trades daily involve the dollar.
- Because the dollar is so valuable, many people also prefer to invest in dollar-based assets or save their money in dollars.
Time For A Change?
Just as well, the dollar’s value has given the United States a lot of influence on global politics. If any country behaves in a way that the U.S government doesn’t like, they can just issue a “sanction” and hurt that country’s economy.
Today, countries like Russia, Iran, China, Venezuela, and more are under one form of sanction or the other from the U.S government.
Soon enough, several countries started to get very uncomfortable with the amount of power that the United States got. And, they basically started pushing for something called “de-dollarization” – basically, reducing the influence of the dollar on global markets.
- De-dollarization aims to substitute the dollar’s use in international trade.
- Its goal is to help countries reduce their reliance on the dollar and the United States.
- Fans of this move also claim that it will reduce the impact of economic and political changes in the U.S. on other countries.
Over the years, de-dollarization has become more popular across the world. Countries like China and Brazil now trade using China’s yuan, instead of the dollar. And, as more countries slowly move away from the dollar, the BRICS countries are now hoping to keep the trend.
A New Currency
In April, the BRICS countries – made up of Brazil, Russia, India, China, and South Africa – announced that they are considering a new currency system that they’d use to settle trades between each other.
While nothing concrete is out yet, the countries claimed that they could have their currency in place as early as the second half of the year.
What Will This New Currency Mean?
It’s understandable that many investors are worried about the impact of a possible BRICS currency on the dollar. But, should you be worried?
For now, the answer is no. Even though the BRICS countries are quite strong economically, their currencies aren’t as popular as the dollar. While the dollar is used in 84.3% of cross-border trade, China’s yuan – the most popular of the BRICS currencies – is used in just 4.5%.
Even put together, these countries’ currencies can’t match the dollar.
Besides that, you also need to remember that a BRICS currency will only work for the BRICS countries. Other countries might not feel the need to use it – especially if they trade more with the United States than any of the BRICS countries.
All in all, the best that a BRICS currency can do is reduce the dollar’s dominance a little bit – not overthrow it. And that’s even IF a BRICS currency happens.
So, What Do You Do?
For now, the dollar remains the safest currency to own and invest in. The U.S economy remains the strongest in the world, and the dollar’s status as the global reserve currency isn’t changing anytime soon.With the Quidax Dollar Savings tool, you have the perfect way to hold your money in the dollar and protect it from inflation. Plus, you get the chance to earn up to 10% in annual interest. Nothing beats that!