Impact of intra-BRICS trade on the share of United States dollar in international reserve composition

The study examines the impact of the BRICS countries’ trade on the composition of their US dollar reserves using dynamic panel data analysis. The research aims to determine if the trade between the BRICS countries promotes currency diversification or reinforces their reliance on the dollar. The paper adopts a dynamic panel data model using the Mean Group (MG), Pooled Mean Group (PMG), and Dynamic Fixed Effect (DFE) estimators for annual data from 2006 to 2022. The empirical results reveal a short-term currency diversification away from the dollar, which may be caused by intra-BRICS non-dollar trade agreements. Yet, the analysis gave no conclusive evidence of currency diversification in the long term. The Hausman test points to the PMG estimator as the most efficient, confirming robust model reliability. These findings indicate a complex interaction between trade and reserve dynamics, driven in part by the BRICS efforts to reduce dependency on the dollar as a vehicle currency. This study is among the first to apply dynamic panel data models to explore the impact of BRICS trade on the member countries’ US dollar reserves. It combines MG, PMG, and DFE estimators to assess the short-term and long-term effects of the trade, thus offering new insights into the dual nature of trade impacts on currency reserves and emphasizing the strategic role of BRICS in the global financial landscape.