Johannesburg - The BRICS collective of Brazil, Russia, India, China, and South Africa has been discussing the de-dollarisation of international trade, which would reduce the dollar's dominance in global markets.
The talks come ahead of the 15th BRICS Summit from August 22 to 24, which will be hosted by South Africa, which is also the BRICS chair, under the theme: BRICS and Africa.
The summit could see Russian President Vladimir Putin in attendance, who has an arrest warrant against him from the International Criminal Court over gross human rights violations during his military's invasion of Ukraine. South Africa has faced external pressure, particularly from the US, concerning carrying out the ICC's warrant.
With the new currency system suggested as part of the summit's agenda, the global community has heard more comments in favour of autonomy in the global economy. This week, Brazil's President Luiz Inácio Lula da Silva welcomed the idea of the BRICS bank trading with its currency.
"Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries? Who decided that the dollar was the (trade) currency after the end of gold parity?" Lula asked.
Earlier this month, French President Emmanuel Macron made remarks that Europe should reduce its dependence on the “extraterritoriality of the US dollar” in the wake of the Russia conflict and China's standoff with the US.
Back in 2019, Malaysia's then-prime minister Mahathir Mohamad proposed a common trading currency for East Asia akin to gold, Jason Hollands, managing director of investment platform Bestinvest, told FirstPost that the “weaponisation of the dollar” by the US in sanctions against Russia had rattled many countries, particularly developing nations.
“Countries willing to continue to trade with Russia, like India and China, have started doing so in rupees and yuan instead, triggering talk of the de-dollarisation of the international trading order. Brazil and China are now trading with each other in yuan, helping to establish the Chinese renminbi as an international currency and dollar challenger,” he said.
A de-dollarised world would erode the United States' ability to influence the behaviour of its rivals, thus amplifying US national security risks.
Political scientist Matthew Bishop from the University of Sheffield wrote for the Economics Observatory: “Consequently, some European and US policymakers worry that the BRICS may become less an economic club of rising powers seeking to influence global growth and development and more a politically one defined by their authoritarian nationalism.”
Because of its clout in global politics, the US relies on its currency's dominance. It has since 1945, as a result of the Bretton Woods Agreement, established the US dollar as the global reserve currency, rather than gold.
But since the 2007-2008 financial crisis, the dollar's power, as well as its disproportionate impact over other economies, has been called into doubt. The dollar is weaker as a result of moves made by China, Russia, Saudi Arabia and Iran to stop pricing and trading oil in US dollars. This is in addition to its sanctions against Russia, its financial crisis in Silicon Valley, and the recent leak of classified military documents.
In contrast, BRICS has steadily grown since South Africa’s inclusion in 2010. Of the five members, only China has achieved sustained and extensive growth since and may become the dominant currency after the euro.
Foreign Minister Naledi Pandor told the media that worldwide interest in the BRICS group had grown. In early March, she told television interviewers that she had 12 letters from interested countries on her desk.
"Saudi Arabia is one, United Arab Emirates, Egypt, Algeria, and Argentina, as well as Mexico and Nigeria,” Pandor said.
In 2021, Egypt, the United Arab Emirates, Uruguay and Bangladesh took up shares in BRICS, but all at less than the $10 million deposited by the collective.
The US dollar still dominates, with almost 90% of forex trade involving the greenback. With nearly 90% of all FX transactions, the US dollar continues to rule international trade. If the Chinese yuan replaces the dollar as the reserve currency, the subsequent drop in demand would be fatal for the dollar, while boosting other currencies like the euro. But this is unlikely to happen.
Economic experts have all but discounted the idea of a weak dollar as a result of BRICS moves, saying that more research is needed to comprehend the BRICS' planned new currency system and how it would function in the current global economy.
Predictions about the BRICS countries being the fastest expanding economies haven't panned out, but the fact that Western media is debating the prospect of a non-western mainstream currency system may be proof that the dollar is losing strength in both developed and developing countries.