BRICS nations, which is a powerful grouping of the world’s leading emerging market economies, is currently on the path to dethrone the U.S. dollar’s dominance worldwide by potentially launching a common currency for trading. While this does not necessarily mean that a financial crisis is imminent, it is adding to an international shift away U.S-dollar dominance, known as de-dollarization, which could have long-term repercussions for the economy and investors. The Financial Post recently turned to Sightline Wealth Management to learn more.
“The benefits to a country with reserve currency status include significant liquidity and a reduced level of exchange rate risk,” explains Paul de Sousa, senior investment advisor at Sightline Wealth Management. “But one of the biggest is the ability of an indebted government to reduce borrowing costs. Most countries hold their dollar reserves as U.S. government bonds and that high demand drives down bond yields.”
However, now as the U.S. financial system becomes more volatile and fragile, countries such as BRICS have been incentivized to look for options beyond the U.S. dollar. If a potentially rapid de-dollarization scenario does occur in the near future, de Sousa tells the publication that investors may want to rethink their portfolio allocations. One way that investors can protect their portfolios, is by diversifying their assets with alternatives such as physical gold.
“Gold is a hedge against inflation and, in an emergency, something that can easily be converted to cash in a transparent market,” de Sousa says. “With thousands of years of value behind it, gold is not the type of asset we see people buying and selling as prices fluctuate — it’s more of an insurance policy and a store of generational wealth. If money itself lets you down, gold is there to offer stability.”
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