BRICS gains pose challenge to dollar

In an economic development that has not received much attention in Western media, the GDP of the BRICS nations has surpassed that of the Group of Seven.

That news, coupled with talks by the BRICS — Brazil, Russia, India, China and South Africa — nations to move toward an alternative reserve currency, presents a challenge to the US dollar as the world's primary reserve currency.

BRICS nations have surpassed G7 in terms of gross domestic product based on purchasing power parity, according to data published by UK-based economic research firm Acorn Macro Consulting.

G7 comprises the United States, Canada, the United Kingdom, France, Italy, Germany and Japan.

The BRICS group makes up 41 percent of the global population and accounts for 16 percent of world trade. The five BRICS nations now contribute nearly 31.5 percent of global GDP, compared with 30.7 percent by G7 countries, Acorn said.

On Thursday, Brazilian President Luiz Inacio Lula da Silva called on BRICS nations to come up with an alternative to replace the dollar in foreign trade.

Lula spoke during a visit to the New Development Bank in Shanghai, an institution created by BRICS countries. The former president of Brazil, Dilma Rousseff, is the bank's new chief executive.

"Why can't an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?" Lula said. "Who decided that the dollar was the (trade) currency after the end of gold parity? We need a currency that gives countries more calm, because today a country needs to run after the dollar to be able to export, when it could export in its own currency."

In a recent interview, investor Peter Schiff, who founded metals dealer SchiffGold, said the dollar's role as the world currency is a privilege that the US enjoys at the expense of the rest of the world.

"There are all sorts of reasons why the world should want to divest of dollars and no longer depend on the US dollar as a reserve currency, but we gave them another one," he said.

"The (Joe) Biden administration in slapping those economic sanctions on Russia really highlighted how dangerous it is to allow the United States to enjoy this privilege. And so, we have scared the world into divesting of dollars, something they should have done anyway because it was in their economic interest to do so."

Jim O'Neill, former chairman of Goldman Sachs Asset Management wrote in an article for the Financial Advisor website on Thursday: "The eclipse of the dollar would not necessarily be a bad thing for the US, given all the added responsibilities that come with issuing the world's main reserve currency.

"In a global economy where the US already is no longer as dominant as it once was, it is not optimal to have everyone else be so dependent on the American monetary system and the Federal Reserve's domestically driven priorities."

Agencies contributed to this story.