The dollar has become the world’s most important medium of exchange since the end of World War II. It is the most common principal reserve currency and the currency most often used for international trade and other transactions around the world. The dollar’s central role in the global economy gives the United States (U.S.) some advantages, including easier borrowing abroad and expanding the reach of U.S. financial sanctions.
Currency devaluation is usually a complex and controversial process involving various economic and geopolitical factors. The BRICS group (Brazil, Russia, India, China, and South Africa) has no direct control over the value of the U.S. dollar, as the value of the dollar is determined by various factors, including the economic performance of the U.S., interest rates, inflation, and global demand for the dollar. The dollar is unlikely to lose its status as a global reserve currency anytime soon, even as the expansion of the BRICS group of developing countries signals another challenge to the dollar’s dominance of the world economy.
What is BRICS?
The acronym BRIC, which initially did not include South Africa, was coined in 2001 by Goldman Sachs’ then-chief economist, Jim O’Neill, in a research paper that highlighted the growth potential of Brazil, Russia, India, and China. The bloc was founded as an informal club in 2009 to provide its members with a platform to challenge the world order dominated by the U.S. and its Western allies.
Is BRICS creating a new currency?
The BRICS countries aim to create new economic and trade systems separate from the Western systems led by the U.S., according to the group.
This was also the main topic at this year’s summit, the group decisively discussed de-dollarization, “in order to reduce reliance on the U.S. dollar and promote the use of national currencies in international trade”, such as the Chinese currency yuan.
The reason for this? The U.S. dollar affects other currencies. When the U.S. economy strengthens, the dollar also strengthens – but this weakens other currencies. The BRICS discussed ways to expand trade between their countries as a way to become less reliant on the dollar.
The influence of BRICS on the Balkans
If we assume a scenario in which the BRICS countries jointly undertake actions that in some way lead to a significant devaluation of the U.S. dollar, this could potentially have several indirect effects on the global economy, including the Western Balkans. Small economies like the Balkans would not be able to resist any significant changes in the currency market.
Commodity prices: A weaker dollar could lead to higher commodity prices, as commodities like oil are often priced in dollars. This could affect Western Balkan countries, especially if they are importers of commodities.
Interest rates and capital flows: A significant devaluation of the dollar could lead to changes in global interest rates and capital flows. If interest rates rise in response to a weaker dollar, this could affect borrowing costs for Western Balkan countries, potentially affecting investment and economic growth.
Inflation: A weaker dollar could contribute to higher inflation in some countries, depending on their economic structure and reliance on imports. Inflation can have various effects on the economy, including changes in consumption patterns and business investment.
For now, these effects are highly speculative, and the actual impact on the Western Balkans would depend on a number of factors, including the specific economic conditions of each country, their trade relations, and the political responses of their governments, as well as the path to the European Union (EU), Forbes reports.
