Understanding the Shift Away from the US Dollar

Introduction

• Recent headlines suggest countries are moving away from the US dollar.
• The US dollar's dominance gives the US power, especially in imposing financial sanctions.
• The BRICS nations (Brazil, Russia, India, China, South Africa) are leading this shift, particularly Russia and China.

The Dollar as the World's Reserve Currency

• Most global trade is invoiced in US dollars:
  • 96% in the Americas
  • 74% in Asia-Pacific
  • 79% in other regions
  • Exception: Europe, where the euro is dominant.
• Commodities like gold and oil are priced in dollars.
• Countries need USD reserves for international trade.
• Trade transactions typically involve US-based banks, giving the US leverage.

US Financial Sanctions

• Example: Iran has faced extensive US sanctions affecting its ability to trade oil.
• Sanctions can drastically reduce a country's exports, as seen with Iran's oil exports timeline.
• The "weaponization of the dollar" allows the US to control and punish countries.
• Over time, more countries have come under US sanctions.

Shift in Geopolitical Dynamics

• Russia faced heavy sanctions after invading Ukraine.
  • Major Russian banks were cut off from USD transactions and SWIFT.
  • $300 billion of foreign reserves frozen.
• Despite this, Russia showed economic resilience by trading with China.
  • Over 90% of Russia-China trade settled in yuan or ruble.

BRICS Nations' Response

• BRICS countries collaborate to bypass the need for USD.
  • Example: Surge in Russian oil sales to India and China.
• Alternatives to SWIFT:
  • China's CIPS system for yuan transactions.
  • Russia's SPFS, launched in response to sanctions.

Increasing Gold Reserves

• BRICS nations are bolstering gold reserves to reduce USD dependence.
  • China's PBOC added 314 tonnes to its reserves.
  • Russia increased gold purchases, with gold at 31.5% of its reserves.

BRICS Summit and Expansion

• Recent BRICS Summit expanded membership to Egypt, Ethiopia, Iran, UAE.
• Discussions on BRICS Pay, an alternative to SWIFT, possibly using blockchain.

Implications of a BRICS Pay System

• A unified BRICS payment system could weaken US influence.
• BRICS covers significant global GDP, oil reserves, and population.
• A successful BRICS Pay would diminish the US dollar's effectiveness as a weapon.

Conclusion

• The potential impact of BRICS Pay on international trade and US power dynamics.
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