Image created by A.I
A few days before the 16th BRICS summit in Kazan, Russia, in October 2024, the organizers of the summit advised attendees to bring US dollars and euros, as Russian banks preferred these currencies to the ruble. At the meeting, leaders representing Brazil, Russia, India, China and South Africa discussed plans to reduce their dependence on the US dollar.
Although the US dollar’s dominance has diminished, it remains – and is likely to remain – by far the most widely used currency by a number of measures. The US dollar still accounts for 59% of the world’s central bank reserves, down from 72% after World War II. Even if the BRICS countries aim to move away from the US dollar, it will take years, and the move will be partial at best. China currency
The US government is unlikely to allow such a divestment of the dollar, without any retaliatory response, and may mean taking retaliatory measures in the form of freezing countries’ dollar holdings!
US President-elect Donald Trump has warned the BRICS countries that if they try to replace the “great US dollar”, they will face “100% trade tariffs”, and should expect to say goodbye to dealing with the great US economy!
Following Donald Trump’s announcement, his advisors have called for tough measures against countries seeking to get rid of the “sovereignty” of the dollar and undermine the position of the “United States”.
The US dollar has been the world’s “reserve currency” for nearly a century, but the BRICS challenge to the US dollar’s dominance stems from the group’s perceived “collective economic power,” especially when its members account for 24% of the world’s $105 trillion GDP and 16% of global trade (available statistics speak of global exports of $25 trillion and imports of $24 trillion). New countries have joined the BRICS organization, where this expansion is called (Brics Plus), and these countries are (Egypt, Ethiopia, Iran and the United Arab Emirates), where they intend to get rid of the US dollar in their “bilateral transactions” and aim for a “more diversified monetary system, due to the financial sanctions followed by the United States as a unique means due to the dominance of the dollar, and the United States has already imposed sanctions (which ensure that Russia does not have access to the dollar) due to its invasion of Ukraine, which is called (weaponizing the dollar)
For its part, China (which depends entirely on the dollar for the stability of its official currency) expressed its commitment, along with Russia, to “introduce” an alternative payment system jointly independent of the (SWIFT) organization that relies on the US dollar.
The Chinese position is supported not only by its “significant footprint” in international trade and investment (the Belt and Road Initiative (BRI) for example), but also by the use of its local currency (the yuan or Renminbi / abbreviated RMB) in global transactions (especially with the Gulf Cooperation Council countries), and could be a “fundamental competitor” to the US dollar.
In addition to the goal of introducing other national and regional currencies as alternatives to the US dollar, the BRICS countries’ intention includes the use of digital currencies.
More than a year ago, Brazil took a step forward by proposing to the BRICS member states to create a common currency for trade and investment among themselves.
While the Brazilian proposal is not widely accepted among the member states, India and the United Arab Emirates, which share close relations with the United States, want to deal with their own local currency!
India signed a local currency swap agreement with the UAE in July 2023 and with Malaysia in April 2023, and later in the year, the Indian government announced that it had signed agreements with 22 countries to facilitate transactions in local currencies.
However, India has been cautious about the BRICS currency even as India and Russia continue to trade in their currencies to buy oil.
While talking about reforming the global economy and the need for an alternative economic system, policymakers have acknowledged the importance of the US dollar.
This was reflected in the announcement by Reserve Bank of India Governor Shaktikanta Das in January 2024 that the Indian government was not considering a move towards demonetization, and that it would remain the dominant currency!
Following Donald Trump’s recent statements, Indian Foreign Minister S. Jaishankar clarified that India was never thinking of getting rid of the dollar, and there is no proposal for a BRICS currency now!
Over the past few years, the US’s political-regional, economic and strategic dominance has been challenged, primarily by China and Russia.
However, in this broader global context, the reality is that most governments and large corporations continue to borrow heavily in US dollars.
As a cautionary tale, Russian President Vladimir Putin himself said that a common BRICS currency was a “long-term possibility” and that it was “not under consideration,” even as the bloc explores the possibility of expanding the use of local currencies and creating instruments that would make this work secure!
It is difficult to gauge, then, how determined the BRICS member states are to achieve their goal, even as analysts remain skeptical about the “feasibility” of implementing coordinated measures any time soon.
(Quoted from an article by Tridivesh Singh Maini in The Diplomat)
Discover more from Daily NEWS Global 24/7
Subscribe to get the latest posts sent to your email.
