The U.S. dollar is the world’s reserve currency and wields power in all segments of trade. It has the privilege of being the sole currency for all international transactions that eventually fund its deficit.
However, the U.S. dollar could depreciate if BRICS convinces Gulf countries to accept local currencies for oil and gas trade. Oil-producing countries like the United Arab Emirates (UAE) and Saudi Arabia are beginning to accept local currencies for exporting millions of barrels of oil.
U.S. Dollar in Jeopardy if BRICS Use Local Currencies To Settle Oil & Gas Trade
If the BRICS countries start using local currencies for oil transactions, it could decrease the demand for the U.S. dollar. The greenback runs on supply and demand, and the move could alter its path on a global scale. A dip in demand for the U.S. dollar leads to its depreciation against other local currencies.
The development could impact the purchasing power of the U.S. dollar, as America might no longer outsource inflation to other countries. The dollar’s ‘privilege status’ could take a hit, and it might no longer enjoy the advantage it holds in markets. Read here to know how many sectors in the U.S. could be affected if the dollar is less used around the world.
The negotiations for oil and gas prices could be altered drastically if the BRICS begin to settle payments in local currencies. The two parties could set a new price and not calculate the output based on the dollar’s value. Therefore, the U.S. dollar will lose out on foreign exchange rates as the currency will be completely avoided in transactions.
BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Moreover, the bloc is looking to end dependency on the U.S. dollar and is convincing other developing countries to follow suit. The upcoming summit is scheduled for August 22–24 in Johannesburg, South Africa.