De-dollarisation refers to the process by which countries reduce their reliance on the U.S. dollar in international trade, finance, and reserves. This shift typically involves promoting the use of alternative currencies, such as local or regional currencies, for trade settlements, foreign reserves, and investment transactions. The goal of de-dollarisation is to decrease dependency on the U.S. dollar and the influence of U.S. monetary policy on national economies.
Countries pursue de-dollarisation for various reasons, including:
Reducing vulnerability to U.S. sanctions or economic pressures.
Mitigating exchange rate risks linked to the U.S. dollar.
Strengthening national currencies by promoting their use in global markets.
In recent years, BRICS countries and others have discussed de-dollarisation as a strategy to create a more balanced global financial system, with some exploring trade agreements in alternative currencies like the Chinese yuan or the euro.
BRICS is an acronym for a group of five major emerging economies: Brazil, Russia, India, China, and South Africa. These countries are known for their significant influence on regional and global affairs, particularly in terms of economic growth and development. BRICS was initially formed in 2009 (originally as BRIC before South Africa joined in 2010) as a cooperative platform for discussing economic policies and strategies.
The group aims to enhance collaboration in areas such as trade, investment, finance, and development, promoting a more multipolar global order. BRICS countries together account for a large portion of the world's population, landmass, and economic output, making them key players in shaping the global economic landscape. The BRICS nations also seek to reform international institutions like the World Bank and the International Monetary Fund (IMF) to better reflect the interests of developing economies.
The BRICS group holds annual summits where leaders discuss various issues, including economic cooperation, geopolitical stability, and sustainable development.
If you happen to follow the merger and acquisition (M&A) marketplace, you are well aware that activity has been relatively subdued. After a couple of record activity years emerging from the pandemic, dealmakers and market participants witnessed a more conservative transactional attitude by both buyers and sellers in 2022 and 2023 – in large part due to the well-covered macro influences of 1) interest rates, 2) inflation, and 3) economic and geopolitical concerns. When you mix rising costs with uncertainty, the acquisitive world typically pulls back to reassess and reposition.
In the face of the muted environment there have been calls by analysts, researchers and industry participants alike that the deal environment will show signs of greater life in 2024 as the above-referenced headwinds have evidenced either progress or resilience. Inflation is coming in-line with the Fed target (2.4% annual increase in the CPI for September), an interest rate cutting campaign has just begun (50 bps cut by the Fed in September), and the economy is holding in there (GDP growth of 3.0% in the 2nd quarter per the 3rd estimate). While the macro climate appears to be lining up to support the more vibrant deal thesis, the proof has yet to fully materialize in terms of robust transaction activity. It appears the engine needs more time to warm up.
Deflation is the decrease in the general price level of goods and services, leading to an increase in the purchasing power of money. It occurs when the supply of goods exceeds demand, often during economic downturns or periods of reduced consumer spending.
While lower prices might seem beneficial, prolonged deflation can signal economic problems, such as reduced business profits, rising unemployment, and slowed economic activity.
Deflation may cause consumers and businesses to delay purchases, expecting prices to fall further, which can deepen economic stagnation.
Central banks typically combat deflation by lowering interest rates or employing other monetary policy tools to stimulate demand and encourage investment.
