During their summit last year, the BRIC nations formally extended invitations that were finalized with acceptance last week. Saudi Arabia, Egypt, Ethiopia, Iran and the UAE have officially accepted while 34 additional countries have expressed interest in joining as well. With Russia taking over chairmanship this year, culminating with a BRICS summit in Kazan in October. The addition of the two major Gulf economies to the bloc will “increase the level of linkages between the region and the rest of the world and they will improve capacity to attract investment,” Jihad Azour, the International Monetary Fund’s director for the Mena region, told The National. More bilateral trade in local currencies is also expected as the new countries join the group.
“The implication we are watching closely from the addition of Saudi Arabia, the UAE and Egypt to Brics is the potential for more bilateral trade in local currencies, particularly following the UAE and India’s agreement reached in July, and Egypt being in similar discussions with India already,” said Carla Slim, an economist at Standard Chartered Bank.
So what does all this do for currency investors? We’ve already seen Iraq attempt to dedollarize their marketplace. Many have said that the dollar can’t be used any longer in Iraq, which isn’t quite true. Here’s the official statement on use of the US dollar.
Iraq will ban cash withdrawals and transactions in US dollars as of January 1 2024 in the latest push to curb the misuse of its hard currency reserves in financial crimes and the evasion of US sanctions on Iran, a top Iraqi central bank official said.
The move aims to stamp out the illicit use of some 50 percent of the $10 billion that Iraq imports in cash from the New York Federal Reserve each year, Mazen Ahmed, director-general of investment and remittances at the Iraqi central bank (CBI), told Reuters.
It’s also part of a broader push to de-dollarise an economy that has seen the greenback preferred over local notes by a population weary of recurring wars and crises following the 2003 US invasion.
People who deposit dollars into banks before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, Ahmed said. But dollars deposited in 2024 could only be withdrawn in local currency at the official rate of 1,320.
So as you can see, if they had dollars in December, they can get dollars in 2024. This was a push to get the dollars out of the marketplaces and begin the use of the dinar as the primary currency in country. This also opened the door to use the dinar in international transactions. The goal is to create the dinar as the economic stronghold for financial operations. De-dollarisation offers both advantages and disadvantages. Benefits include diversified risks, strengthened national currencies, increased monetary policy independence, and reduced vulnerability to US sanctions. Drawbacks encompass transition challenges, potential short-term instability, and limited global acceptance of alternative currencies. As we’ve seen, they’ve been busy working with other countries on currency acceptance, and have established all time highs in dollar and other currency reserves. They’ve done the work to support the dinar’s transition back into the marketplace with a value that is commiserate with the natural resources and support they have.
BWM