- BRICS countries are moving ahead with plans to reduce their reliance on the U.S. dollar in global trade and finance.
- JPMorgan research finds that these de-dollarization efforts are speeding up changes in commodity pricing, central bank reserves, and international payment systems.
- More trade in energy and commodities is being settled in non-dollar currencies, especially in Asia.
- Central banks are diversifying reserves by buying more Gold and holding a smaller share of U.S. dollars.
- Analysts caution that these shifts may impact U.S. asset returns, global bond markets, and Treasury yields.
BRICS countries, led by Brazil, Russia, India, China, and South Africa, are increasing efforts to move away from the U.S. dollar as the main currency for global trade and financial transactions. According to JPMorgan analysts, these changes are happening quickly, affecting commodity markets, central bank reserves, and international payments.
Researchers at JPMorgan’s Global Macro Research division observe that de-dollarization—meaning less structural demand for the dollar as a reserve currency—is reshaping how dollars are used in international transactions and as holdings in global reserves. A noticeable shift is taking place in the way energy and commodity trades are settled.
The bank reports that more energy contracts are now priced in non-dollar currencies. “Today, a large and growing proportion of energy is being priced in non-dollar-denominated contracts,” said Natasha Kaneva, who leads Global Commodities Strategy at JPMorgan. Indian companies are paying for Russian coal in Chinese yuan, and Bangladesh has started using yuan for payments to Russia.
In reserve management, JPMorgan found a decrease in the percentage of foreign exchange reserves held in dollars as central banks buy more gold. According to Meera Chandan, co-head of Global FX Strategy at JPMorgan, emerging markets have raised their gold reserves from 4% to 9% in the past ten years. China, Russia, and Turkey have led gold purchases, contributing to higher gold prices.
The New Development Bank, chaired by former Brazilian President Dilma Rousseff, is developing alternatives to international payment networks such as SWIFT. This aims to create a more independent financial system among BRICS nations.
Foreign ownership of U.S. Treasuries has dropped from above 50% during the 2008 financial crisis to 30% now, according to JPMorgan. Alexander Wise with JPMorgan noted that a reduction or diversification of foreign reserve holdings could impact U.S. equity and bond markets. Jay Barry, Head of Global Rates Strategy, said that major foreign creditors like Japan, holding over $1.1 trillion in Treasuries, could move markets if they reduce their holdings.
The report highlights how these actions by BRICS and changing central bank strategies are putting new pressures on the future of the U.S. dollar in the international system.
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