BRICS Currency and Dollar Dominance: Indices and the Yield Curve

BRICS began as “BRIC,” an investment concept coined by Goldman Sachs economist Jim O’Neill in 2001, identifying Brazil, Russia, India, and China as the fastest-growing major economies of the coming decades. The four held their first leaders’ summit in 2009, added South Africa in 2010 to make it BRICS, and have since expanded to include Egypt, Ethiopia, Iran, the UAE, and Indonesia, with a broader circle of partner countries. BRICS nations now represent nearly half (about 48%) of the world’s population and roughly 40% of global GDP by purchasing power parity.

One of BRICS’s central ongoing projects is de-dollarization — reducing international trade and finance’s dependence on the US dollar. This is not a single dramatic action but a set of parallel, gradual initiatives:

Important nuance: Russia’s President has explicitly stated that a single shared BRICS currency is not currently a goal. India’s government has been particularly measured, publicly stating that a stable US dollar supports global economic stability and that replacing it is not India’s policy. (On rupee invoicing, see the RBI circular of July 11, 2022.) The dollar’s share of global reserves has declined from approximately 71% in 2000 to approximately 58% in 2024 — a significant shift, but still overwhelming dominance. What is changing is the trajectory and the awareness that the dominance is not permanent.

A stock market index tracks a basket of stocks together as a single number, allowing people to discuss “how the market is doing” without listing every individual company’s performance. Indices are constructed according to specific methodologies — most weight companies by their market capitalization.

An index needs two choices: which stocks go in, and how much each one counts. Most major indexes weight each company by its market capitalization, which is share price times shares outstanding. The S&P 500 and India’s Nifty 50 use free-float market capitalization, which counts only the shares available to the public. A few indexes, such as the Dow Jones Industrial Average, weight by share price instead, so a high-priced share moves the index more than a bigger company with a lower price.

In a market-capitalization-weighted index the largest companies move the number most. That is why a handful of very large firms can drive an index on their own, and why an index can rise even when most of its stocks fall.

In the US, one monthly report matters more than almost any other economic release: the Non-Farm Payrolls (NFP) report, usually released on the first Friday of each month by the Bureau of Labor Statistics. It counts how many jobs the US economy added or lost in the previous month (excluding farm workers, whose employment is highly seasonal). It is released alongside the official unemployment rate.

This single report routinely moves stock markets, currency markets, and bond markets within seconds of its 8:30 AM Eastern Time release — because it directly shapes what the Federal Reserve is likely to do next with interest rates, which cascades into mortgage rates, business loan costs, currency values, and asset prices everywhere. A stronger-than-expected NFP report can cause the rupee to fall and Indian bond yields to rise within the same trading session.

The headline jobs number comes from a survey of employers, the establishment survey, which counts payroll jobs. The unemployment rate published alongside it comes from a separate survey of households. The two can point in different directions in the same month, because they count different things.

The first estimate is revised in each of the following two months as late responses arrive, so a single month is noisy. Many analysts therefore look at the three-month average rather than at one release.

A bond is an IOU: the issuer (a government or company) borrows your money, pays fixed interest — the coupon — and repays the principal at maturity. Unlike a bank loan, a bond trades hands constantly after issuance, and its market price moves. This produces the single most important mechanical rule in finance: bond prices and yields move in opposite directions. If you hold a bond paying 5% and new bonds pay 7%, nobody buys yours at full price — its price falls until its effective return (yield) matches the market. Rates up, bond prices down; rates down, bond prices up. This is precisely the mechanism that broke Silicon Valley Bank (chapter 3.9: Bank Regulation — and the SVB Case Study): rising rates crushed the value of its bond holdings.

Bond safety spans a spectrum. Government bonds (US Treasuries, India’s G-Secs) are the safest in their own currency, since governments can tax — or print. Investment-grade corporate bonds pay more to compensate for default risk; high-yield (“junk”) bonds pay much more for much more risk. The gap between a corporate bond’s yield and the equivalent government yield — the credit spread — is a real-time fear gauge: spreads widen when markets smell trouble.

Plot government bond yields from 3-month to 30-year maturities and you get the yield curve — arguably the most watched line in finance. Normally it slopes upward: lenders demand more for locking money away longer. When it inverts — short-term yields above long-term — markets are effectively saying “rates are high now, but a slowdown will force cuts.” An inverted US curve has preceded essentially every US recession in the past half-century, which is why the 2022–24 inversion, the deepest in four decades, generated so much anxiety (a recession that, unusually, did not promptly arrive — a reminder that even the best indicator is a probability, not a prophecy).

Why does this market “rule them all”? Because the 10-year US Treasury yield is the world’s risk-free benchmark: US mortgages price off it, global corporations borrow at spreads above it, equity valuations discount future profits against it, and emerging markets feel capital flee toward it whenever it rises. And because bond investors can sell a government’s debt — driving its borrowing costs up — they discipline fiscal policy in a way voters rarely do. The UK’s 2022 mini-budget crisis, when markets revolted against unfunded tax cuts and a prime minister fell within weeks, showed that muscle, and also how leverage can turn a repricing into a spiral (see the box below). India’s own G-Sec market has joined the global mainstream: Indian government bonds entered JPMorgan’s flagship emerging-market bond index in June 2024, pulling tens of billions of dollars of foreign inflows into rupee debt.