The Implications Of BRICS, ECO Currency And African Trade on the US Economy

The rise of emerging economies, and particularly the formation of BRICS alliance , along with the introduction of the ECO currency in West Africa, and the African Continental Free Trade Area (AFCTRA) is poised to reshape the global economic order. According to the Statista Research Department data in 2022, BRICS (Brazil, Russia, India, China, and South Africa) nations has a combined GDP share ( PPP) of 31.67% of the world economy in terms of Purchasing Power Parity(PPP) , these regions are challenging the dominance of traditional economic powerhouses in the G7 nations (United States, Canada, Japan, Germany, France, the United Kingdom, and Italy), which has GDP share ( PPP) representing 30.31% of the global economy. Comparatively, BRICS has slight leap over G7 in terms of global GDP share(PPP) all things being equal.

This article explores the potential implications of the BRICS and ECO currencies , and AFCTRA on the US economy in seven(7)-points analysis, focusing on inflation, Value, Cost of import, deficit financing, diversification, and the future of the US dollar as the global reserve currency.

BRICS Currency and Inflation Dynamics
The emergence of a BRICS currency could have far-reaching effects on the US economy, particularly concerning inflation. As these nations strengthen economic ties and cooperation, a shift in global trade patterns may ensue. If BRICS countries and their trading partners choose to conduct transactions using their own local currencies or a basket of currencies that excludes the US dollar, there is a possibility of reduced demand for the dollar in international trade.

Impact on the Value of the US Dollar
A decline in demand for the dollar could weaken its value relative to other currencies, leading to higher inflation in the US. A weaker dollar means that it would take more dollars to purchase the same amount of goods and services, resulting in increased consumer prices. This cost-push inflation may put pressure on domestic prices, impacting the purchasing power of consumers and businesses.

Cost of Imported Goods
One significant consequence of a weaker dollar is the rise in the cost of imported goods. As the dollar's value decreases, foreign goods become more expensive for US consumers and businesses. This can lead to higher prices for products and commodities that heavily rely on imports, such as electronics, automobiles, and oil.

Financing the US Deficit
Additionally, a decline in demand for the US dollar in international trade may pose challenges in financing the US deficit. The US relies on foreign investors, such as central banks and sovereign wealth funds, to purchase US Treasury bonds and finance its budget deficit. If these investors diversify their holdings away from the dollar, the US government may face difficulties in funding its fiscal obligations, potentially leading to higher interest rates and borrowing costs.

ECO Currency and Enhanced Trade Integration

The introduction of the ECO currency in West Africa has the potential to foster deeper economic integration among African nations and BRICS countries. This could result in increased trade volumes and investment flows between these regions, possibly reducing their reliance on traditional Western currencies like the US dollar.

Diversification of Currency Reserves
Currently, 41 countries have expressed interest in using the BRICS currency, indicating a growing acceptance and willingness to diversify currency reserves. As more nations embrace these alternative currencies, the influence of the US dollar as the world's primary reserve currency may face substantial challenges.

Future of the US Dollar
Recently, the renowned US investor Warren Buffett assert that he foresee the long-lasting supremacy of the US dollar for the next 50 years. Contrasting views on the dollar's future trajectory by some experts . However, I belief that, considering the ongoing dynamics of global trade and the momentum behind BRICS and African trade integration, the US dollar may lose its position as the global reserve currency in the next 10-20years, also not forgetting the sharp declining of the U.S. Foreign assets which amounted to 31.68 trillion U.S. dollars in 2022, thus, a decrease from 35.07 trillion U.S. dollars in 2021.

In conclusion, the launch of BRICS and ECO currencies, coupled with the increasing integration of African and emerging economies, has the potential to reshape the global economic landscape. As these regions gain economic clout and assert their presence in international trade, the US dollar's dominance as the world's primary reserve currency may encounter substantial challenges. Policymakers need to closely monitor these developments and adapt to the evolving economic realities to effectively navigate the changing dynamics of the global economy. The implications of the BRICS and ECO currencies on the US economy, particularly in relation to inflation and the future of the US dollar, warrant careful consideration to ensure a well-informed and adaptive approach to the evolving global economic order.

Writer :
Mr. Evans DARKO, Ph.D. Finance ( Candidate), University of Rennes, CREM Lab, France.