Investment analyst Jon Wolfenbarger, CFA, has warned that the successful introduction of a currency in the BRICS nations – Brazil, Russia, India, China, and South Africa – could spell bad news for the U.S. economy and the value of the dollar. In a blog post on Mise Institute’s website, Wolferberger said that the competition with the dollar would ultimately end in failure unless the BRICS create a hard currency backed by gold or other commodities like oil.

The former JPMorgan investment banker claims that the strengthening of the BRICS would lead to less power for the U.S. government and would be similar to the weakening of the UK after WWII. The political and economic impact of a BRICS currency would also weaken U.S. living standards and could prove hugely detrimental.

Wolfenbarger also detailed BRICS initiatives such as the New Development Bank for infrastructure lending, a Contingent Reserve Arrangement to protect against foreign exchange pressures, a payment system as an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), and the creation of a reserve asset based on a basket of the member countries’ currencies to compete with the International Monetary Fund’s (IMF) special drawing rights (SDR).

The combined efforts of the BRICS nations, as well as the growing interest from other states who have applied or expressed interest in joining, presents an increasing threat to US dollar dominance. According to a Swedish university professor, if Saudi Arabia was to join the BRICS group, the Chinese Yuan’s use as a trading currency would accelerate therefrom.

Overall, the presence of a BRICS currency would have a seismic shift on global economics and the power distribution between governments and although it isn’t guaranteed to succeed, could still have a massive effect on the U.S. economy. Wolfenbarger did, however, emphasize that the BRICS need to focus on creating a hard currency backed by gold or commodities if they are to experience any real success.



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