$45 trillion investment storm in the Global South from the BRICS

BRICS member states have reached a combined investment potential of $45 trillion – shifting the balance of power in the global economy by bringing the Global South to the fore. After the official enlargement of the bloc at the beginning of 2024, the alliance acquires the guarantees to become an economic superpower directly threatening the USA. The BRICS alliance originally consisted of Brazil, Russia, India, China and South Africa. However, it has successfully added several new countries to its ranks in recent months, including the United Arab Emirates and Saudi Arabia. These states are not only rich in critical resources such as oil and other commodities, but also have a large investment capital base due to their strong economies. With this increase in investable wealth, the BRICS can further invest in their New Development Bank, which in turn will invest in developing economies to in turn strengthen the BRICS group.

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Brazil pushes for a common BRICS currency – Focus on de-dollarization

At the same time, Brazilian President Luiz Inácio Lula da Silva, together with Egyptian President Abdel Fatah Al-Sisi, announced an initiative for the adoption of a common currency by BRICS, with the aim of reducing global dependence on the dollar. This announcement reinforces Lula’s earlier calls for a unified monetary system within the BRICS countries that would provide an alternative to the dollar in trade and investment.

At the summit in South Africa in August 2023, Lula presented his criticism of the economies’ dependence on the dollar. He sees a common BRICS currency as a way to expand the choice of payment systems in international transactions and reduce the vulnerabilities of the global trading system.

Egypt abandons the dollar

As part of the above initiative, Egypt decisively broke its dependence on the dollar, aligning with the BRICS bloc’s strategic move towards de-dollarization. This bold maneuver signals a broader geopolitical realignment.

By joining forces with the BRICS, Egypt is charting a new course that deviates from the traditional economic patterns mainly of the Middle Eastern states where the dollar is dominant mainly in the energy markets with the so-called “petrodollar” which was imposed after the abandonment of the rule of gold.

The winds of change in global trade

The recent expansion of the BRICS alliance, which welcomed Egypt among other countries, was an important moment for the global economy despite the fact that the Western media played it down to appease the public opinion of their states.

This expansion is a bold statement against the hegemony of the US dollar in international trade. Egypt has made a proactive move to reduce the economic burden created by its dependence on the dollar, adjusting transactions to local currencies with particular speed.

The transition is based on the global economic upheavals and changes that have occurred over the past four years. Because of these challenges, there is now an urgent need to find a stable alternative to dollar-induced instability in the global monetary system.

As a result of the threat of Western sanctions, which are similar to those suffered by Russia, the states of the BRICS group are moving closer to economic independence and self-sufficiency.

The solution to the consolidation of the economy

Although Egypt enjoys many advantages, its economy is on the verge of collapse, easily affected by external events such as pandemics and geopolitical developments. More than 70% of the value of the Egyptian pound has been lost since the beginning of 2022.

This shows how unstable the country’s finances are. The economic slowdown has led to the development of a black market where the value of the Egyptian pound has fallen dramatically, making the country’s economic problems even worse.

There was a big drop in the central bank’s foreign reserves, which fell from $44.6 billion in 2019 to $32 billion by the end of 2022.

Egypt’s strategic axis and its implications

Egypt’s strategic importance to the world economy is great. The Suez Canal, an important part of the global shipping network, makes Egypt an even bigger player in world trade.

Egypt has many archaeological sites and an important cultural past, but its economy had problems that prevented it from developing to the extent it could. The economy is in poor shape due to continued poverty, low foreign exchange earnings from tourism compared to the country’s attractiveness, and a long-term trade deficit.

In this negative economic climate, the choice to stop using the US dollar in trade makes sense. It’s a smart move designed to protect the economy from the ups and downs of foreign exchange markets and the terrifying threat of rising external debt. This change will likely change the way Egypt’s economy operates, paving the way for a more stable and viable banking system.

However, Egypt’s path is complicated by structural problems that go beyond currency choice. Over the years, the country’s economic policies have been shaped by a mix of import substitution strategies and slow, often hesitant changes in the internal market.

The decision to stop using the dollar is a big step towards independence, but it also shows how important it is to have a clear economic plan that can help Egypt reach its full potential.

Countries like South Korea and Turkey have been successful because they have a clear vision and are committed to a national economic strategy. Egypt follows this path as the only place of salvation.

The developments are expected to be stormy and the Global South seeks to have a strong say in shaping them.

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Trust Economics is a specialized independent economic research, analysis and consultancy business. Our team provides ingenious analysis in the macro & micro economic field, in the field of financial market, regional and sectoral analysis equally, forecasts, consultancy, specialized studies-research/projects from its headquarters in Athens, Greece.

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