Bric Countries and Dollar as Anchor Currency

A reserve currency (or anchor currency) is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market.
This article is going to explain the effect on further extension of US economic turmoil and how the world economy is day by day effecting, so now nations are searching alternative avenues in order to consider better stability in global economy so that again export and import market will rejuvenate. We all know that the world is now in a condition which economists like to explain as Vicious circle. The more we try to get out of it we implement steps and that again push us further far deep into the trap. The fall always raise so many questions for further modifications in all area for having better future, it’s also visible now that emerging economic nations like Brazil, Russia, India and china who are collectively known as Bric Countries trying to put hard light on the agenda known as the role of Dollar and its status as the world’s dominant currency.
These nations now desire to see the effect dollar one day replaced as the world’s main trading currency. Economists and traders like to see effect on this change because with recent trends it’s quite evident that volatility and lesser confidence is affecting entire world with every moments. But it also triggers the fear that these big holders of dollar assets can push the volatile financial market to a new height and US politics. China the fastest emerging nation among Bric countries are looking really aggressive on this issue, as per them call for new reserve currency is quite legitimate and premature. In this regard China’s central bank governor’s comment is creating storming effect in world financial market when he said that dollar should be replaced as the world’s largest reserve currency by special drawing Right (SDR) issued by the IMF. Russian president also showed his concern on it and further like to discuss on coming Bric summit. These concerns have in part led to a decline in the dollar against other major currencies in recent months and sent jitters through the market for US government debt. China’s this offensive economic move is not unnoticed by US but China and Russia already taking steps on it by diversify their currency reserves away from dollar:

China has made arrangements with six countries worth 650bn Yuan ($95bn) that allow trade to be Conducted in renminbi rather than dollars

China and Russia have said they will buy bonds to be issued by the IMF

Recent data released showed that both China and Russia had trimmed their holdings of US government bonds in April.

Government strategists largely feel that its implementation will have both ways push and pull effect in world trade; they feel that if these countries now try to replace dollar with other currency as world’s major currency then a weaker dollar and rising government bond yields can make it more expensive for the US government to borrow money. This ultimately could lead to problems in financing the measures taken to help the US economy recover. On the other hand by this change China and Russia also need to alter their reserve mechanism and trade relations too. But it’s also need to keep in mind Bric countries account more than 13% of world economy and have 40 % of world population, so this issue cannot be ignored and may going to change dollar composition in world business. Coming Bric Summit will be in the lime light for all economists and government officials across the world to see where the future is going of US dollar and its impact on global market.