What Is BRICS?

The acronym BRICS refers to an economic alliance between multiple powerful emerging economies, including Brazil, Russia, India, China, and South Africa, respectively. Altogether, they currently generate over 25% of the world’s GDP, and are home to over 40% of the global population. While BRICS membership does not necessarily entail exclusive trade perks or benefits, they value geopolitical cooperation with one another, meeting at annual summits since 2009.

How Are They Challenging USD?

Many analysts interpret BRICS as being a response to the West’s expanding geopolitical influence via NATO and the G7, one that grows ever more significant following the invasion of Ukraine. This function is particularly evident given that Russian President Vladimir Putin recently proposed in June that BRICS develop an "international reserve currency based on the basket of currencies of our countries" to rival the US Dollar. If enacted, this could mean the end of an era for USD hegemony on the world stage.

How Serious Are Their Intentions?

China is reportedly aiding in this new reserve currency endeavor, as Western sanctions against Russia pile up while other BRICS countries fear similar treatment. China’s President Xi Jinping has accused the US and its allies of constructing “a small yard with high fences” via economic warfare. This international sentiment is apparently not unique: thus far, five more countries have either applied or plan on applying to join BRICS, including Iran, Argentina, Saudi Arabia, Turkey, and Egypt, with many more countries formally invited. This interest is especially significant in light of the existing tensions between these countries, such as China and India, Iran and Saudi Arabia, etc.

How Could This Affect Major Pairs?

If such an alternative reserve currency is enacted, and subsequently denominates many international trade transactions as the BRICS alliance grows, the foreign exchange market could see a big drop in demand for USD against other currencies. This could also herald the end of the petrodollar since many BRICS countries are prominent oil and gas exporters. Although these ambitious plans will likely not be realized for some time, this could eventually mean a huge paradigm shift for major pair fundamentals.