BRICS is looking to topple the U.S. dollar global reserve status by controlling a major portion of the oil sector. In the first instance, Russia’s third-largest oil exporting firm ‘Gazprom Neft‘ announced that the company is ending its reliance on the U.S. dollar. The oil exporter will not be accepting the U.S. dollar for trade and is open to accepting local currencies. The Russian firm is the first oil company to publicly announce cutting ties with the U.S. dollar for cross-border transactions.
The move comes after BRICS members India and the UAE settled oil trade in the rupee and not the dollar. Additionally, Saudi Arabia has also expressed that the Kingdom is open to accepting local currencies for oil exports. The development puts pressure on the U.S. dollar, as the greenback will find it challenging to fund its deficit.
The CEO of Gazprom Neft, Alexander Dyukov said that the firm is accepting Chinese yuan and Russian ruble as payment. “We mainly use Yuan and Rubles,” he said to Tass. A spokesperson confirmed that the company has no problem in accepting and withdrawing foreign currencies from across the world.
Moreover, the oil exporter is yet to open its payment systems to other local currencies. “No. We don’t use Rupees,” and other native currencies, he said. Therefore, the firm currently accepts only the Chinese yuan and ruble at the moment, after ending its dependence on the U.S. dollar. If many other oil firms follow suit, then the U.S. dollar could be in jeopardy.
The BRICS summit ended on a high note in August after the bloc inducted six new countries into the group. Leading oil-producing nations Saudi Arabia, the UAE, Egypt, Iran, and Ethiopia will join the alliance in January 2024. Also, Argentina is the only new BRICS member that does not produce and export oil. The one common thing between the 11-member BRICS group is their disdain for the U.S. dollar. Moreover, BRICS is looking to end dependency on the U.S. dollar by promoting their local currencies for cross-border transactions.
A total of 10 financial sectors in the U.S. will be affected if BRICS uses local currencies and not the U.S. dollar. The sectors include banking, trade, forex, and tourism, among others. The U.S. financial sectors that could be affected if BRICS ditch the U.S. dollar are:
1. Global Financial System
2. Banking and Finance
3. Energy and Commodity Markets
4. International Trade and Investment
5. Capital Markets
6. Consumer Goods and Retail
7. Production and Consumption
8. Technology and Fintech
9. Government and Policy
10. Travel and Tourism
Moreover, all the 10 sectors are closely linked to the U.S. economy and could have complications if the dollar loses demand. The banking sector could take the first hit that might eventually spill over to the markets.
Once the financial markets are hit, the domino effect could roll over to all sectors leading to a financial catastrophe. In conclusion, if the U.S. fails to fund its deficit, prices of all commodities could skyrocket or even reach hyperinflation.
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