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Can BRICS reshape the global financial order?
Can BRICS reshape the global financial order?

Arab News

time2 days ago

  • Business
  • Arab News

Can BRICS reshape the global financial order?

In August 2023, the leaders of the BRICS nations — Brazil, Russia, India, China and South Africa — gathered in Johannesburg to declare their ambition to rewire the international system. A centerpiece of that ambition was a call to reduce dependence on the US dollar. For some, the idea sounded like deja vu; de-dollarization has been a recurring theme in emerging markets since the early 2000s. But this time, the stakes feel different. Global polarization is intensifying, financial weaponization has become normalized and the credibility of existing multilateral institutions is eroding. Yet, for all the hype, the BRICS project remains deeply flawed and uneven. The notion that BRICS could reshape the global financial order rests more on aspiration than reality. While dollar dominance is indeed being reassessed — not just by geopolitical rivals but also by pragmatic middle powers — building a credible alternative requires more than shared discontent. It demands deep capital markets, interoperable infrastructure, credible institutions and — above all — mutual trust. On all these counts, BRICS is still struggling. The desire to reduce dollar reliance is not simply ideological but a reaction to a financial architecture long shaped by US interests. The 2008 financial crisis exposed the dangers of global dependency on Wall Street. The 2022 sanctions on Russia, which froze hundreds of billions in central bank reserves and cut Moscow off from SWIFT, sent a clear signal to other BRICS members: your assets can be turned into weapons overnight. The desire to reduce dollar reliance is not simply ideological but a reaction to a financial architecture long shaped by US interests Dr. John Sfakianakis But does fear translate into capability? Not necessarily. Incremental moves are already underway. China has expanded its Cross-Border Interbank Payment System and accelerated digital yuan pilots across Asia and Africa. India has begun settling some trade in rupees, particularly with Russia and the UAE. Russia is developing Mir and the System for Transfer of Financial Messages to bypass Western financial rails. Brazil and South Africa are exploring fintech-led payment corridors. Yet, taken together, these initiatives remain fragmented, politically fragile and institutionally weak. The internal contradictions of BRICS are glaring. China's outsized role in the bloc breeds discomfort among its partners. The yuan remains nonconvertible. India and China are strategic competitors. Russia is economically isolated. Brazil and South Africa are preoccupied with their own fiscal instability. What unites them is not a shared monetary strategy but a defensive impulse — a desire to insulate themselves from the coercive tools of the current system without agreeing on a viable alternative to replace it. In this respect, the BRICS bloc echoes the spirit of the Non-Aligned Movement of the 1960s — born from frustration with superpower domination, yet too ideologically and strategically diverse to forge a coherent economic alternative. These aspirations are further undercut by a chronic lack of fiscal and data transparency across the bloc, which undermines investor confidence and complicates efforts to build trust in any shared monetary or institutional arrangement. Moreover, the dollar is not just a medium of exchange — it is an ecosystem. From commodity pricing and bond issuance to foreign exchange markets and central bank reserves, it is woven into the plumbing of global capitalism. Displacing it would require an alternative that is not only politically palatable but technically superior. BRICS is nowhere near delivering that. The New Development Bank and the Contingent Reserve Arrangement — touted as BRICS' answer to the International Monetary Fund and the World Bank — have underperformed. Lending volumes are limited. Governance structures are opaque. And the credibility of any shared macroeconomic framework remains questionable in the absence of institutional convergence. Even digital currencies, often billed as a leapfrog solution, are no silver bullet. China's e-CNY remains tightly controlled and untested at scale. Interoperability with other BRICS central bank digital currencies remains aspirational. Moreover, few of these economies inspire enough investor confidence to turn their currencies into regional, let alone global, anchors. Displacing the dollar would require an alternative that is not only politically palatable but technically superior Dr. John Sfakianakis One point bears repeating: the US may well benefit from a credible external challenge. A push from BRICS could serve as a cold slap in the face — forcing America to reckon with the fragility of its own advantages. For too long, dollar dominance has bred complacency. If confronted with a viable challenge, the US could rediscover its competitive edge — leveraging innovation, capital markets and entrepreneurial dynamism to future-proof its leadership. But let's be clear: BRICS is not that challenge yet. It is a concept in search of coherence — a geopolitical brand lacking operational capacity. Its declarations are bold but its execution remains underwhelming. The underutilization of the New Development Bank, for example, is telling: with lending volumes far below expectations and project delivery uneven, the institution reflects the broader gap between BRICS' ambitions and its administrative muscle. As for the Gulf states and other middle powers watching this evolution, caution — not commitment — is the prudent course. Strategic hedging makes sense. Deepening financial links with BRICS, especially through trade settlement, infrastructure finance and digital innovation, is worth exploring. But abandoning the Western-led system is neither practical nor desirable. The future is hybrid. Gulf countries will continue to invest the bulk of their sovereign assets in Western markets, manage reserves in dollars and euros, and rely on Western institutions for legal recourse and financial stability. Take Saudi Arabia's Public Investment Fund, for instance: despite deepening ties with China and India, 40 percent of its portfolio remains invested in the US — across equities, tech, infrastructure and real estate. Engagement with BRICS must be pragmatic, flexible and bounded by clear-eyed realism. The global financial order is evolving — but slowly and with considerable friction. The shift from sterling to the dollar took decades and two world wars. Even the EU, despite decades of political and economic integration and the introduction of the euro, continues to wrestle with internal divisions and incomplete fiscal unity. This ongoing struggle underscores how extraordinarily difficult it is to build a credible alternative currency system. The notion that a loosely stitched alliance of emerging economies can replicate such a transformation — absent deep coordination, robust institutions and global trust — is, at best, premature and, at worst, a triumph of hope over infrastructure. If BRICS truly wants to reshape the financial order, it must start by getting its own house in order. Until then, it will remain more a rhetorical vehicle than a real force for monetary transformation.

Euro Credit to Benefit From Dollar Shift, Deutsche Bank Says
Euro Credit to Benefit From Dollar Shift, Deutsche Bank Says

Bloomberg

time2 days ago

  • Business
  • Bloomberg

Euro Credit to Benefit From Dollar Shift, Deutsche Bank Says

Investors will shift increasing amounts of cash coming from US investment-grade bonds to Europe as the 'de-dollarization' theme is gaining traction, according to Deutsche Bank AG strategists. The team led by Cem Keltek expects 25% of reinvestment flows — where investors put coupon payments and bond redemptions — from dollar-based investment grade credit to move elsewhere. This is equivalent to an average of $9.3 billion every month and the European credit market could absorb about half of it, the strategists wrote in a report.

Morning Bid Americas: Dollar plunges as Trump pummels Powell
Morning Bid Americas: Dollar plunges as Trump pummels Powell

Yahoo

time26-06-2025

  • Business
  • Yahoo

Morning Bid Americas: Dollar plunges as Trump pummels Powell

By Mike Dolan LONDON (Reuters) - What matters in U.S. and global markets today By Mike Dolan, Editor-At-Large, Finance and Markets The U.S. dollar is on course for its worst first half year since 1973, as it plummeted again on Thursday amid rising expectations for Federal Reserve easing and statements from President Donald Trump about his pick for the next Fed chair. I'll discuss this and the rest of the market news below. Make sure to check out today's column, where I discuss what the Bank of England's rethink of its bond-selling strategy may signal about long-term yields and balance sheets across the developed markets. Today's Market Minute * U.S. President Donald Trump said on Wednesday he would likely seek a commitment from Iran to end its nuclear ambitions at talks next week and credited U.S. strikes on Iran with bringing a swift end to the war between Israel and Tehran. * In their rush to retain President Trump's support for NATO, the alliance's European members have promised to more than double the amount of wealth they set aside for military spending. * Asian stocks wobbled and the dollar was under pressure on Thursday as the prospect of an early appointment of the next Federal Reserve Chair by President Donald Trump stoked concerns over the independence and credibility of the U.S. central bank. * Much of the "de-dollarization" debate has focused on foreign exposure to U.S. securities like stocks and bonds. But ROI columnist Jamie McGeever warns investors should not ignore foreign direct investment flows, the traditionally sticky capital that may also be sending out warning signals. Dollar plunges as Trump pummels Powell The dollar's index against the most traded world currencies has now lost more than 10% in 2025 to date just as the half-year mark approaches next week and it is now at its weakest in three years. That is the index's worst six month performance since 1991, and it is its worst first half since the start of the floating exchange rate era 52 years ago. The euro soared above $1.17 to its highest in almost four years, the Swiss franc hit its strongest in a decade and sterling hit its best level since 2021. The dollar slide has snowballed since Trump's trade war unfolded in April amid worries about foreign investor flight and uncertainty about U.S. policymaking. A revival of Europe's economic outlook has been the flipside, spurred by a ratcheting up of regional defense spending and Germany's dramatic fiscal boost. Wary of the inflationary effects of tariff increases, the Fed has held the line on interest rates while other central banks continued easing. But speculation about a resumption of rate cuts this year has mounted again this month - with particular focus on what happens after Fed Chair Powell's term ends next May. The trigger for the overnight dollar lurch lower appears to have been Trump's latest salvo against Powell and his reluctance to back a rate cut now - a stance the Fed boss underlined in congressional testimonies this week. But attending the NATO summit in The Hague on Wednesday, where the alliance pledged to lift defense spending toward 5% of GDP over the next decade, Trump said he would soon name his picks to replace what he called a "terrible" Powell next year. With splits emerging among the Fed policymakers about how soon to start cutting rates again, markets have started to stack up easing bets amid reports of a Trump-appointed "shadow" Fed chair emerging over the remainder of the year to undermine Powell's authority. Fears for Fed policymaking independence from politics are now rife. Fed futures pricing now expects rates to fall by 137 basis points to 3% by early 2027, 30 bps more than it priced in one month ago. There is now a one-in-four chance of a cut as soon as July and some 63 bps of Fed cuts expected by year-end. Negotiating another heavy week of debt sales, two and 10-year Treasury yields fell to near two-month lows on Thursday. The Fed also unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in U.S. Treasury markets. That lifted bank stocks. The full reversal of recent oil price gains this week as the Israel-Iran ceasefire holds added to a more benign inflation picture and U.S. crude is back registering losses of 20% year-on-year. Trump said on Wednesday the U.S. had not given up its maximum pressure on Iran, but signaled a potential easing in enforcement of restrictions on the sales of Iranian oil to help the country rebuild. Talks with Iran are due next week. Stock markets were firmer across the world, with MSCI's all-country index eking out a new record high and the Nasdaq 100 hitting a new record on Wednesday. The S&P 500 is now within 1% of its all-time high too as the second-quarter earnings season nears next month. Although it ended flat on Wednesday, futures were higher ahead of Thursday's bell. Thursday sees a stream of economic updates on May trade and weekly jobs, with this week's consumer confidence and housing updates readings showing notable weakness. In the backdrop, markets are watching for the possible passing of Trump's fiscal bill and debt ceiling rise in Congress by the July 4 holiday and then early next month sees the spotlight falling on an expiry of his 90-day pause on April's "reciprocal" tariff hikes. With no further bilateral trade deals announced of late, speculation is rising about an extension of the pause. Treasury Secretary Scott Bessent, meantime, extended the department's authority to continue extraordinary cash management measures to keep from breaching the federal debt ceiling by nearly a month, until July 24. Elsewhere, oil giant Shell said it had not bid for BP and was not actively considering such a move, adding it was bound by UK regulations which mean such a statement banned it from making a bid for BP for the next six months. The Wall Street Journal reported on Wednesday that Shell was in talks to acquire BP. Chart of the day Fed futures pricing now sees rates falling 137 basis points to 3% by early 2027 - 30 bps more than it priced a month ago. There is now a one-in-four chance of a cut as soon as July and some 63 bps of Fed cuts by year-end. Today's events to watch * U.S. May goods trade balance, May durable goods orders, weekly jobless claims, May retail/wholesale inventories, May pending home sales, May Chicago Federal Reserve activity index, Kansas City Fed June business survey, final Q1 GDP revision, Q1 corp profits revision (8:30 a.m. EDT) Mexico May trade balance (8:00 a.m. EDT) * Mexico central bank policy decision (3:00 p.m. EDT) * Minneapolis Federal Reserve President Neel Kashkari, Richmond Fed President Thomas Barkin, Cleveland Fed chief Beth Hammack and Fed Board Governor Michael Barr speak; European Central Bank President Christine Lagarde and ECB board member Isabel Schnabel speak; Bank of England governor Andrew Bailey speaks * European Union summit in Brussels * U.S. Treasury sells $44 billion 7-year notes * U.S. corporate earnings: Nike, Walgreens Boots Alliance, McCormick Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. (By Mike Dolan; Editing by Anna Szymanski and Alison Williams) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

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