All eyes are on the BRICS summit, but here's why de-dollarization is a 'fantasy detached from economic logic & reason' - Hugh Hendry
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(Kitco News) As the BRICS summit is underway, with Brazil, Russia, India, China and South Africa meeting in Johannesburg, the main themes are membership expansion and acceleration of de-dollarization. But not all are convinced that moving away from the dollar is truly a viable strategy for these countries, with Hugh Hendry, Founder of Eclectica Macro, telling Kitco News that anyone who sees de-dollarization as a major threat has "zero understanding" of how the world works.
After more than 40 countries expressed interest in joining the BRICS, more than 20 have already formally asked to be admitted, Reuters reported.
During this week's summit, all eyes are on nations like Saudi Arabia and Argentina, with Russia and Brazil expressing their willingness to back them as new members.
For more on what it means for a major player like Saudi Arabia to join the BRICS and the consequences for the petrodollar, watch Michelle Makori's interview with Andy Schectman, President and Owner of Miles Franklin, here.
Another goal is to step up trade and lending in local currencies, as the BRICS bloc sees the U.S. dollar as having been weaponized by the West following Russia's invasion of Ukraine.
"The objective, irreversible process of de-dollarization of our economic ties is gaining momentum," said Russian President Vladimir Putin on Tuesday. Putin is attending the summit virtually because of an arrest warrant accusing him of war crimes in Ukraine that was issued by the International Criminal Court (ICC) in March.
A dollar-centric world is over, South Africa's Ambassador at Large: Asia and BRICS, Anil Sooklal, told reporters prior to the summit. "That's a reality. We have a multipolar global trading system today," Sooklal said.
But even with the percentage of global reserves in U.S. dollars falling from 73% in 2001 to 58% in 2023, according to RBC, and more countries reaching new deals to trade in local currencies, some experts remain unconvinced.
"I'm willing to say that de-dollarization is a fantasy, which is detached from economic logic and reason," Hendry told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "Anyone who seeks to persuade you that that is remotely possible has zero understanding with regard to how the world works."
One of the issues for Hendry is that the BRICS countries have no use in holding each other's currencies.
"It's absolutely preposterous … Their markets are not that deep, they have a closed capital account, and their currency does not trade freely," he said. "The Chinese currency is beginning to accelerate on the downside versus the dollar. Every currency in the world is presently losing value versus to the dollar."
Hendry also addressed the idea of a potential new BRICS currency that could be backed by commodities. Watch the video above to get more insights.
Hendry pointed out that Saudi Arabia won't be ditching the dollar and pricing oil in other currencies any time soon. To get his rationale, watch the video above.
The other key element maintaining the dollar?s status, according to Hendry, is America's democratic system, and it’s being the world's most open and liquid capital markets.
"It's a democracy. Things work. There is a rule of law, especially contract law. If there's malpractice, it's eventually found. And that is the attraction of the United States dollar," he said. "It will change when there is a valid alternative, when there is an enormous economic region, which is democratic, where the rule of contract law is, is the ultimate thing, and when markets are deeply liquid, and you can buy or sell, then for sure that could be anything, any other, any other currency."
On why Hendry thinks there's never been a sustainable hegemon that wasn't democratic at its roots, watch the video above.
For more concrete investment advice on how Hendry would invest $1 million, click here or watch the video above. Hendry also highlights one asset that is the most likely to triple.