For decades, the US dollar’s supremacy has influenced international politics and economics around the world. The dollar’s dominance in international trade and reserve positions persists despite the growth of other currencies. Recent geopolitical events, especially the cooperation among the BRICS countries (South Africa, Brazil, India, China, and Russia), raise interesting concerns regarding the potential for alternative currencies and their future in relation to the dollar.
A rising emphasis among member states on lowering reliance on the dollar was underscored during Prime Minister Narendra Modi’s contacts with President Xi Jinping during the last BRICS summit in Russia. The BRICS nations are thinking of methods to protect themselves against the West’s possible financial weaponization as geopolitical tensions rise, especially after sanctions were imposed on Russia. Examining the dynamics of this new environment will help us determine if the BRICS can build a strong substitute for the dollar-dominated financial system.
The Power of the Dollar
Over the years, the US dollar has done more than simply facilitate trade; it has also been a potent instrument of international politics. President Putin has made it clear that nations should reevaluate their dependence on the dollar, particularly in light of the sanctions placed on Russia as a result of its invasion of Ukraine. Russia was cut off from the international banking system by these sanctions, highlighting how vulnerable countries are that rely largely on dollar transactions.
Putin’s comments regarding the dollar being “weaponized” have a significant impact on the BRICS countries. Concerned about the impact on their economies, the member nations are eager to put safeguards in place. So, the question becomes: Is it possible for the BRICS to come up with a framework that safeguards against dollar dependence?
Looking into Other Options: Money and Transaction Processing
An alternative that has received a lot of attention among the BRICS members is the creation of a new unified currency. Nevertheless, one must wonder if such a step is really feasible. Obtaining broad acceptability is just as difficult as the logistical challenges of creating a new currency. The dollar’s widespread credibility and its ability to be converted into any other currency are two factors contributing to its supremacy.
There may be a change in emphasis instead toward developing alternatives to the SWIFT system, which enables cross-border financial transactions. Although SWIFT has become an integral part of international finance due to its efficacy, the fact that it does not include some countries—most notably Russia—has brought attention to the necessity for a more inclusive system. A number of BRICS countries have started looking into regional payment systems to get around SWIFT’s restrictions.
Constraints on Regional Money
Trading in local currencies may offer a short-term fix, but it isn’t without its problems. Consider the recent rupee-based oil purchases made by India from Russia; this begs the question of what Russia will do with its surplus of rupees. Local currencies have limited value on a global scale unless there is a network of countries ready to accept them. The dollar has a leg up over other currencies, such as those of the BRICS countries, due to its broad recognition and convertibility.
Furthermore, local currency transactions are made more difficult by the discrepancies in trade balances. For example, Russia’s surplus rupees might be hard to put to good use if India buys far more from Russia than it sells. This situation illustrates the problems with using domestic currency in global commerce.
The Proposal to De-Dollarize
Discussions of de-dollarization are becoming more popular among BRICS nations as a response to the problems caused by their reliance on the dollar. The goal is not to do away with the dollar totally, but to make it less dominant in international banking and trade. A number of recent geopolitical developments, most notably the imposition of economic sanctions by the United States, have prompted proposals for new systems that would lessen the impact of monetary centralization.
The fact that about 58% of the world’s foreign exchange reserves are stored in dollars and that 88% of all global transactions are conducted in dollars is an obstacle that any ambitious de-dollarization plans must overcome. Any currency that wants to compete with the dollar faces an uphill battle due to its established dominance.
A Future with Multiple Monetary Poles?
A multipolar financial landscape is becoming more acknowledged, even though the BRICS states encounter considerable challenges in establishing a common currency or financial system. A new order may arise as a result of changes in globalization and national economic agendas; this order may not seek to unseat the dollar but may provide alternatives to it.
By working together, the BRICS countries may be able to forge stronger international and bilateral trade deals that are good for their currencies. One way BRICS can seek to reduce the dollar’s sway is by encouraging trade among its member nations and creating financial systems that give preference to their own currencies.
In sum: a new paradigm
The US dollar’s function is under unprecedented scrutiny as we traverse a globe that is becoming more multipolar. The BRICS nations must now decide how to balance their desire for economic independence with the constraints of global finance. Improving economic cooperation among the BRICS nations should take precedence over loftier goals like a single currency or a new payment system.
The US dollar is not going anywhere anytime soon, given the current state of affairs. A more robust and diverse global financial system, in which the dollar is not the only dominant currency, may be possible as a result of the discussions started by the BRICS.
(The views expressed above are the author’s own. JK News Today is not responsible for the same.)
