End of the dollar empire? How BRICS could dethrone the USD as global currency? The U.S. dollar has held a position of unparalleled dominance in global trade and finance for over seven decades. Serving as the world's reserve currency since the Bretton Woods Agreement in 1944, the dollar has become the backbone of international commerce, commodity pricing, and financial transactions. However, an emerging coalition of nations known as BRICS, comprising Brazil, Russia, India, China, and South Africa, aims to disrupt this global financial order.
With significant economic and geopolitical power, BRICS is increasingly seen as a potential challenger to the dollar empire. Recent developments, including BRICS's expansion and discussions about alternative financial systems, have reignited debates about the future of the global economy. Could the U.S. dollar's dominance be nearing its end? What is BRICS?
BRICS was established in 2009 by Brazil, Russia, India, and China as an economic and political bloc focused on fostering cooperation among emerging markets. South Africa joined the group in 2010, broadening its influence to Africa. Today, BRICS represents over 40% of the world's population, nearly 30% of global GDP, and a significant share of global trade.
Initially formed to counterbalance the dominance of Western powers in global governance, BRICS has evolved into a platform for economic, political, and financial collaboration. It aims to create a multipolar financial system. that reduces reliance on the U.S. dollar and institutions like the International Monetary Fund, IMF, and the World Bank.
Why are countries joining BRICS? In August 2024, during the 15th BRICS Summit held in Johannesburg, South Africa, the bloc announced a historic expansion. Six new countries were invited to join BRICS. Saudi Arabia, Iran, the United Arab Emirates, UAE, Egypt, Ethiopia, and Argentina.
This marks the first major enlargement of the bloc since South Africa joined in 2010. Why are these nations keen on joining BRICS? Let's unpack this. Reason one, reducing dependency on the U.S. dollar.
For decades, global trade has been heavily reliant on the U.S. dollar. However, this dependency leaves nations vulnerable to fluctuations in the dollar's value and economic policies set by the Federal Reserve. By joining BRICS, countries can explore alternative trading mechanisms, such as using local currencies or a BRICS currency, to bypass the USD altogether.
Reason two, countering Western influence. Many countries joining BRICS have been subjected to Western sanctions or feel marginalized by global institutions like the IMF and World Bank. For example, Iran and Russia...
Russia have faced significant economic sanctions from the U.S., making them eager to find a financial system less dependent on the dollar. By joining BRICS, they gain access to a platform for trade and financing that reduces reliance on Western-controlled systems. systems.
Reason three, access to development funds. BRICS offers economic opportunities beyond just trade. The group's new development bank, NDB, provides loans for infrastructure and development projects without the stringent conditions imposed by Western institutions.
This appeals to nations like Egypt and Ethiopia, which require significant funding for development and infrastructure growth. And the whole idea of the bank was... to give possibility other countries to work in international arena, financial arena, to support their development and if we talk about the BRICS, specifically it's dedicated to infrastructure of these countries. Reason 4. Strengthening geopolitical alliances. Joining BRICS is also a strategic geopolitical move.
Countries like Saudi Arabia and the UAE see BRICS as an opportunity to align with emerging powers like China and India, while reducing their dependence on the U.S. politically and economically. This shift could signal a broader realignment in global alliances. The appeal of BRICS lies in its promise of a more equitable and inclusive financial order.
Beyond the six confirmed new members, dozens of countries have expressed interest in joining BRICS. Some notable applicants include Turkey, a key regional power that seeks to diversify its economic and geopolitical alliances. Indonesia. one of Southeast Asia's largest economies, looking to strengthen its role in global trade.
Malaysia, a fast-growing economy in Southeast Asia, interested in reducing its reliance on dollar denominations. trade and exploring financial alternatives. Mexico, interested in reducing dependence on U.S.-dominated financial systems.
Bangladesh, a rapidly growing economy seeking better access to development funding. Nigeria, Africa's largest economy. aiming to bolster its influence on the global stage. Algeria, a major energy exporter seeking alternatives to the petrodollar system. The growing interest in BRICS reflects a broader desire among emerging economies to reduce dependency on the U.S. dollar and Western financial institutions.
These countries view BRICS as a vehicle for economic empowerment and geopolitical rebalancing. How BRICS could dethrone the U.S. BRICS has outlined several strategies to challenge the dominance of the U.S. dollar. Here are five key ways the bloc could achieve this. One, launching a BRICS currency.
One of BRICS'most ambitious proposals is the creation of a unified currency. This currency, backed by the combined economic and resource power of member nations, would serve as an alternative to the U.S. dollar in global trade. Russian President Vladimir Putin emphasized this at the BRICS summit.
The use of a common BRICS currency would ensure stability and independence from Western financial systems. Such a currency could enable BRICS nations to bypass the dollar entirely in trade, reducing their exposure to currency fluctuations and U.S. sanctions. Two, promoting trade in local currencies. Even without a common currency, BRICS members are increasingly using local currencies for trade.
China and Russia already settle energy transactions in yuan and rubles, while India and Russia trade in rupees. Expanding these agreements reduces the dollar's role in global commerce and strengthens the financial autonomy of member nations. 3. Expanding Membership The inclusion of resource-rich countries like Saudi Arabia and Iran bolsters BRIC's ability to challenge the petrodollar system.
Saudi Arabia, the world's largest oil exporter, could potentially price oil in non-dollar currencies, a move that would significantly weaken the dollar's dominance in global energy markets. Former Malaysian Prime Minister Mahathir Mohamad commented on this potential shift. The petrodollar is a relic of the past.
If countries like Saudi Arabia join BRICS, the dollar's grip on global energy markets will loosen dramatically. 4. Developing Alternative Financial Systems BRICS nations are working on alternatives to Western-dominated financial platforms like SWIFT. Russia's SPFS payment system and China's CIPS network allow for cross-border transactions that bypass dollar-based systems.
This reduces dependency on Western financial infrastructure and provides BRICS members with greater autonomy. These five countries, they have a huge potential. They can do a number of things and all.
BRICS is the only, I think, platform which can challenge the hegemony of the West, which can bring in new world order. BRICS should have their own working mechanism in a sense that, like trade, their trading mechanism, their own currency exchanges, their own financial systems and all. Five, leveraging natural resources. BRICS countries control some of the world's most valuable resources, from energy and agriculture to rare earth minerals. By trading these commodities in local currencies or the proposed BRICS currency, the block can erode the dollar's dominance in global commodity markets.
For instance, Russia and Saudi Arabia dominate global energy exports, while China is a leader in rare earth minerals essential for modern technology. The U.S. response to BRICS. The U.S. is acutely aware of the growing challenge posed by BRICS.
Washington has responded with both economic and geopolitical measures aimed at preserving the dollar's dominance. Economic sanctions have long been a tool of U.S. foreign policy, targeting countries like Russia, Iran, and Venezuela. However, this has inadvertently pushed these nations toward alternative financial systems.
For example, Russia's exclusion from SWIFT accelerated its efforts to develop the SPFS payment system and deepen financial ties with China. Strengthening alliances. The U.S. has sought to reinforce alliances with key partners, particularly in Europe and the Indo-Pacific region.
Initiatives like the G7 and the Quad are designed to counterbalance BRICS influence and reaffirm U.S. leadership in global governance. Defending the petrodollar. The U.S. has also intensified its diplomatic efforts to maintain the petrodollar system, where oil transactions are conducted primarily in dollars.
However, Saudi Arabia's growing alignment with BRICS signals potential cracks in this system, raising concerns about the long-term viability of dollar dominance in energy markets. Critical perspectives. And some U.S. policymakers have downplayed the BRICS threat, arguing that the dollar's global trust and stability cannot be easily replicated. Former U.S. Treasury Secretary Larry Summers stated, the dollar's dominance is built on decades of stability and trust.
BRICS nations face significant challenges in creating a viable alternative. Others, however, view BRICS as a legitimate challenge. Nobel laureate economist Joseph Stiglitz remarked, the rise of BRICS reflects growing dissatisfaction with the unipolar financial order.
The U.S. must adapt to a changing world. Challenges BRICS Faces While BRICS has ambitious goals, its path to dethroning the dollar is fraught with challenges. 1. Internal Differences BRICS nations differ significantly in their political systems, economic priorities, and levels of development. Aligning these diverse interests to create a unified strategy, let alone a common currency, is a monumental task. Well, you know, BRICS was always a very mixed bag.
It was a creation of investment bankers on Wall Street who thought they saw developing markets. But these countries don't go together naturally. I mean, I think particularly India and Brazil, if they had their druthers, ought to get out of this group to begin with. China and Russia would love to get others to come in as part of their new emerging axis. Second, global trust in the dollar.
The U.S. dollar is seen as a safe haven currency, backed by the world's largest economy and deep financial markets. Building similar trust in BRICS currencies or a unified BRICS currency will take time and effort. Third, Resistance from the U.S. and allies. The U.S. and its allies are unlikely to cede financial dominance without a fight. Economic and geopolitical pressure on BRICS members is expected to intensify as the bloc grows stronger.
Fourth, logistical hurdles. Developing the infrastructure for a new global currency, payment systems, and financial institutions requires significant resources and coordination. These efforts are likely to face technical and operational delays. Conclusion The dominance of the U.S. dollar has shaped the global economy for generations, but BRICS is challenging the status quo.
With its growing membership, strategic use of resources, and development of alternative financial systems, BRICS is positioning itself as a formidable counterweight to the dollar empire. Whether this effort will succeed remains uncertain. But one thing is clear, the global financial order is changing. What do you think? Will BRICS succeed in dethroning the US dollar?
Or is the greenback's dominance unshakable? Let us know in the comments below.