Watching Risk Sentiment As BRICS Summit Gets Started

The BRICS summit is already underway in Johannesburg and last month Russian officials stated that the BRICS countries are considering the introduction of a new trading currency that would be backed by gold. While that might be a bit far-fetched, analysts anticipate that the BRICS nations will continue to pursue de-dollarization, with Gold potentially playing a role in this process to back the new currency, which will likely be a long-term project.

It’s important to note that major global powers like China are unlikely to abruptly abandon the US dollar as the primary international trade currency, since the US is one of the two main trading partners for Chin, besides the EU. Currently, there is no universally preferred alternative currency in the international arena.

BRICS New Development Bank has indicated that any significant shift in currency dynamics will take a considerable amount of time to materialize. Any discussions about alternate currencies are more of a medium to long-term aspiration.

Nonetheless, the trend of de-dollarization is not merely a distant hypothetical scenario—it is actively occurring. The proportion of foreign reserves held in the form of US Federal Reserve notes has been steadily decreasing over the past few years.

So, the current agenda at the BRICS summit in South Africa is poised to prioritize the expansion of the group of five nations. The meeting will bring together the BRICS nations to discuss this agenda. Interestingly, there are a significant number of aspirants, precisely 23, who are vying to join the club.

The USD is safe for now as a result, but risk assets such as stock markets and commodity dollars might see s shift in the sentiment, especially if we hear a pledge to reverse the economic slowdown in China. So, we will be following the risk sentiment to see which side the market is leaning. Earlier today we saw a revival of commodity dollars and other risk assets, but that started fading with the start of the US session.