• S&P doesn’t expect significant short-term economic gains from BRICS expansion, including Saudi Arabia, Iran, UAE, Argentina, Egypt, and Ethiopia.

• JP Morgan analyzes BRICS de-dollarization efforts; the U.S. dollar’s global dominance is challenged, primarily by the Chinese Yuan.

S&P has anticipated that the BRICS alliance’s expansion to include six new countries may not lead to a significant short-term economic improvement. The stock index doesn’t foresee an immediate economic boost from adding Saudi Arabia, Iran, UAE, Argentina, Egypt, and Ethiopia.

The expansion, which had been under discussion for a while, officially materialized during the 2023 annual summit held last month. While adding these new member countries holds economic potential, it might not manifest immediately. Consequently, these potential benefits could turn into long-term objectives for the alliance.

BRICS Expansion and Economic Policies

During last month’s summit, the alliance discussed potential expansion and key economic policies. One key focus was promoting local currencies and fostering member nations’ growth.

However, it’s important to note that the benefits of these efforts may not materialize immediately. S&P anticipated limited short-term economic gains from BRICS expansion, partly due to ongoing reductions in their globally prominent oil production.

According to US Global Investors, the expansion itself increased the BRICS share of the global Gross Domestic Output (GDO) to 36%, firmly establishing the bloc’s economic potential. Nevertheless, challenges and opportunities persist as the alliance takes on this expanded form.

JP Morgan’s Analysis of BRICS De-dollarization Efforts

JP Morgan, a prominent global bank and financial institution, conducted an analysis of the de-dollarization efforts initiated by the BRICS alliance. These efforts risk the U.S. dollar’s status as the world’s primary reserve currency. BRICS nations increasingly use their local currencies for international trade settlement. 

In a recent report titled “De-dollarization: Is the U.S. dollar losing its dominance?” published by JPMorgan’s Global Research, Alexander Wise, a contributor to JPMorgan’s Strategic Research, highlighted that the Chinese Yuan is the primary contender seeking to challenge the U.S. dollar’s dominance.

The report outlined two scenarios that could weaken the U.S. dollar’s global reserve status. The first scenario involves a deteriorating global financial situation that undermines the stability of the U.S. dollar in international markets. The second scenario could result from external factors outside the United States. Where other countries promote their native currencies as viable alternatives for international transactions.

If these other currencies offer safety and reliability during periods of U.S. dollar weakness, it could contribute to a decline in the U.S. dollar’s prominence. However, JP Morgan emphasized that both scenarios would need to occur simultaneously to pose a substantial challenge to the U.S. dollar. These two developments would need to coincide for a significant impact.

Nonetheless, the likelihood of these two scenarios aligning remains minimal. The U.S. dollar maintains its dominant position as the world’s primary currency, and the Chinese Yuan is not currently a significant threat to its supremacy. Therefore, JP Morgan’s analysis suggests that the BRICS alliance is unlikely to unseat the U.S. dollar from its position soon.