BRICS USD Reserve Status Threatened: The Impact of Government Spending

Is the dollar’s global dominance under threat? The answer is complex, and increasingly tied to government spending policies, particularly within BRICS nations. The era of dollar dominance faces an unprecedented challenge as the BRICS economic bloc explores alternatives, fueled by concerns over US fiscal policy and its impact on global stability.

Could a BRICS Currency Threaten U.S. Dollar’s Global Reserve Status?

The discussion around a potential BRICS currency continues to gain momentum. While the US dollar is likely too entrenched to be seriously evicted from GRC status in the immediate future, the seeds of change are being sown. Factors driving this movement include:

• Growing Distrust: Some BRICS nations express concerns about the long-term stability and value of the US dollar, driven by perceptions of unsustainable US government spending.
• De-dollarization Efforts: The decline of the dollar in global reserves, now standing at 59% in 2025, down from 72% in 2020, is not just a matter of capital reallocation. It embodies a gradual shift away from reliance on the dollar.
• Political Considerations: The specter of political interference, as highlighted by past rhetoric, adds fuel to the fire. Trump U.S. President-elect Donald Trump has warned the BRICS countries that if they attempt to replace the “mighty U.S. dollar” they would face “100 percent tariffs. Trump U.S. President Donald Trump threatened BRICS member states with 100% tariffs on Thursday to dissuade them from replacing the US dollar as reserve currency. He also threatened retaliation against governments that challenge the US dollar, vowing 100 percent tariffs on countries that attempt such a move.

The Role of US Government Spending

US Treasury secretary Janet Yellen defended the global dominance of the dollar after leaders of some of the world’s largest emerging markets questioned the outsized role of the US dollar. However, persistent concerns remain about the impact of US fiscal policy on the global economy. High levels of government debt and deficit spending raise questions about the long-term value of the dollar, encouraging some nations to seek alternative reserve currencies.

Challenges to a BRICS Alternative

Despite the momentum, creating a viable alternative to the US dollar as a global reserve currency faces significant hurdles. These include:

• Economic Heterogeneity: The BRICS nations have diverse economies and political systems, making consensus on a common currency challenging.
• Infrastructure Limitations: Establishing the necessary infrastructure and institutions to support a new reserve currency requires significant investment and coordination.
• Market Acceptance: Gaining widespread acceptance and trust in a BRICS currency will take time and require demonstrating its stability and reliability.

Conclusion

While the US dollar's position as the world's primary reserve currency remains secure for now, the actions and economic policies of BRICS nations, particularly in response to US government spending, are gradually chipping away at its dominance. The future of the global financial system is likely to involve a more multi-polar world, with a greater role for alternative currencies and trading arrangements. The key question is whether the BRICS can overcome the challenges and build a credible alternative that fosters stability and growth for its members and the wider global economy.