Dumping the Dollar: Will a new BRICS currency replace the US currency for trade?
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10th April,2023
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The BRICS collective, comprising Brazil, Russia, India, China and South Africa, is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance. The move comes as Moscow and Beijing call for de-dollarisation in the face of Western sanctions.
BRICS' new move to create a new currency is in line with the de-dollarisation movement. Image used for representational purposes/Pixabay
* The US dollar has been the official currency for international trade for years now. However, in recent times there has been talk of creating a new currency in an attempt to dump the dollar and push back against American hegemony.
De-dollarization has gained momentum recently, notably since the start of the Russia-Ukraine war in February. The deputy chairman of the State Duma, Alexander Babakov, was cited as stating last week that the BRICS countries are developing a new payment system based on a plan that "does not defend the dollar or euro." This gave more momentum to the campaign.
Do the BRICS countries genuinely produce a new trade currency? Who is leading this movement today? Will India profit from it? Will the plan come to pass? We strive to address all of the questions that this topic raises.
It has been said that the US dollar is the king of currencies.
It became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
Since then, the dollar has enjoyed a powerful status in the world. It has given the US a disproportionate amount of influence over other economies. In fact, the US has for long used imposition of sanctions as a tool to achieve foreign policy goals.
However, not everybody likes playing by US rules and countries like Russia and China would like to call a halt to dollar hegemony. This process is called de-dollarisation — and it refers to reducing the dollar’s dominance in global markets. It is a process of substituting the US dollar as the currency used for trading oil and/or other commodties.
De-dollarization proponents contend that by lessening other nations' reliance on the US dollar and its economy, they will be able to lessen the effects of US political and economic changes on their own economies. Additionally, nations can lessen their susceptibility to interest rate and currency volatility, which can enhance economic stability and lower the likelihood of financial crises.
Over the past few years, and particularly in the prior year, this movement has accelerated. The International Monetary Fund stated in 2022 that central banks today do not maintain as many dollars in reserves as they did in the past.
"In the fourth quarter of last year, the dollar's share of the world's foreign exchange reserves slipped below 59 percent,According to data from the IMF's Currency Composition of Official Foreign Exchange Reserves, the decrease has now lasted two decades, the study said. "Strikingly, the decrease in the dollar's share hasn't been accompanied by a rise in the shares of the pound, yen, or euro, other long-established reserve currencies... Instead, there has been a two-way shift away from dollars, with 25% going to the Chinese renminbi and 75% going to the currencies of smaller nations that have played a lower role as reserve currencies.
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Western governments removed Russian banks from the Swift global payments system and frozen $300 billion, or almost half, of Russia's foreign exchange reserves last year as retaliation for Russia's invasion of Ukraine.
The so-called dollar "weaponization," according to Jason Hollands, managing director of investing platform Bestinvest, "has rattled many countries and not just Russia."
"Countries willing to carry on business with Russia, like India and China, have begun doing so in rupees and yuan instead, sparking talk of the dedollarization of the global trading system."
He also noted that because of their recent yuan trade, Brazil and China have furthered the development of the Chinese renminbi as a viable alternative to the US dollar.
India has been attempting to stray from the dollar as well. 18 nations recently received authorization to transact in Indian rupees, including the United Kingdom, Germany, Russia, and even the United Arab Emirates. Renowned economist Nouriel Roubini had predicted in February that the Indian rupee might eventually rank among the world's reserve currencies.
The economist known as Doctor Doom had remarked in an interview with ET Now, "One can see how the rupiah could become a vehicle currency for some of the trade that India does with the rest of the world, especially South-South trade."
"It (the Indian rupee) may be a unit of account, a method of exchange, and a store of wealth. Certainly,
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