The decline of the US Dollar: hyperinflation and the BRICS challenge

An imminent collapse of the dollar?

The US dollar, long considered the cornerstone of the global financial system, is facing an unprecedented threat. According to an analysis presented in the September 23, 2024 article published on beincrypto.com, the dollar’s ability to maintain its value is rapidly eroding, raising serious concerns about the possibility of hyperinflation in the United States in the coming years.

The problem: the loss of the dollar’s purchasing power

The key concept emerging is the decline in the dollar’s purchasing power. Lynette Zang, CEO of Zang Enterprises, highlighted that the dollar has lost 97% of its original purchasing power, leaving a mere 3% in 2024. This erosion is worrying, not only for the future of the American currency but also for the stability of the entire global economic system. Zang predicts further devaluation in 2025, which could cause the dollar to lose its remaining value entirely, pushing the United States into a phase of hyperinflation.

Consequences of Hyperinflation

Hyperinflation is a devastating phenomenon. If Zang’s prediction were to come true, the United States could face serious consequences:

1. Decline in living standards: with prices rising rapidly, the cost of living would skyrocket, making it increasingly difficult for citizens to afford essential goods and services. Low-income families would be particularly affected, but the impact would be felt across all social classes.
2. Erosion of savings: those who have saved money over the years would see their wealth lose value dramatically. Inflation would wipe out accumulated savings, leaving many without a financial safety net.
3. Social instability: when the economy falters and living standards decline, the risk of social unrest increases. Anger and frustration over the lack of government intervention could lead to protests and social tensions.

The rise of BRICS: a challenge to the dollar’s dominance

While the dollar faces these challenges, another factor is looming on the horizon: the rise of the BRICS (Brazil, Russia, India, China, and South Africa). This economic bloc is actively seeking to reduce its reliance on the dollar in international trade, promoting the use of their national currencies. The dollar’s decline offers BRICS a unique opportunity to consolidate their position as an alternative to the US-dominated financial system.

Recently, the BRICS alliance has made significant strides toward “de-dollarization,” with many of its members already conducting transactions in local currencies. This shift represents a direct challenge to the dollar’s hegemony as the world’s reserve currency, further undermining the confidence of investors and foreign governments in the US currency.

The role of CBDCs: an additional blow to the dollar?

Another key element in this complex equation is the growing adoption of central bank digital currencies (CBDCs). Currently, 134 countries are actively exploring the possibility of developing and implementing their own CBDCs, with 66 of them already in advanced testing phases. The spread of CBDCs could revolutionize the global financial landscape, further reducing dependence on the dollar and altering the dynamics of international payments.

These digital currencies could provide countries with greater autonomy in international transactions, bypassing the traditional dollar-based system and putting even more pressure on the US currency. For example, if the BRICS bloc were to adopt a common CBDC or facilitate the use of their digital currencies in international transactions, the dollar’s role as a global reserve currency could be further eroded.

Solution: what lies ahead for the dollar’s future?

The outlook isn’t entirely bleak, but it requires timely and strategic intervention. To preserve the dollar’s value and maintain its leadership position in the global financial system, the United States must:

1. Revise monetary policies: the Federal Reserve will need to take decisive measures to contain inflation and stabilize the dollar’s value. This could include raising interest rates and reducing the money supply.
2. Adapt to the digital era: the United States should consider developing its own CBDC to maintain a competitive edge and respond to challenges posed by foreign digital currencies.
3. Strengthen international relations: the United States will need to work closely with its allies to maintain confidence in the dollar as a global reserve currency, even in an increasingly multipolar context.

A Storm on the horizon or an opportunity for change?

The US dollar stands at a critical crossroads, facing threats both internal and external. The erosion of its purchasing power, the growing influence of BRICS, and the emergence of digital currencies present formidable challenges that could mark the end of its hegemony. However, it is precisely in moments of crisis that new opportunities arise. If the United States can confront these challenges with determination and foresight, it could not only prevent the dollar’s decline but also reinvent it for a new and more dynamic era.

The question remains: Will the dollar be able to adapt and thrive, or will we witness its decline as a pillar of the global financial system? Only time will tell, but one thing is certain: the future of the American currency has never been more uncertain.