Emerging Economies Seek Alternatives to US Dollar Dominance in Global Trade
Johannesburg, South Africa – For the past 80 years, the supremacy of the United States dollar in the global currency landscape has been unparalleled. However, a coalition of developing nations, disenchanted with the West’s overbearing influence on worldwide governance and financial systems, is determined to recalibrate its significance.
The movement towards de-dollarization, as stated by Russian President Vladimir Putin during a virtual address at the BRICS summit in Johannesburg, is in motion and gaining momentum. The BRICS summit brings together leaders from Brazil, Russia, India, China, and South Africa.
Since the end of World War II, the US dollar has held the position of the world’s primary reserve currency and is estimated to be involved in over 80 percent of international trade transactions.
Earlier this year, Brazilian President Luiz Inacio Lula da Silva queried the necessity of anchoring global trade solely to the dollar. Preceding that, a senior Russian official hinted at the BRICS alliance exploring the creation of its own currency.
While calls for a departure from dollar-centric dominance aren’t new, the recent shift in global geopolitics, coupled with growing tensions between Western powers and Russia and China, has given fresh impetus to these discussions.
In early 2022, Western sanctions froze almost half of Russia’s foreign currency reserves and led to the exclusion of significant Russian banks from the SWIFT international payment system. Later that year, the United States imposed limitations on the export of semiconductor technology to China.
Shirley Ze Yu, a senior visiting fellow at the London School of Economics, noted that as the US wields the dollar as a tool in sanctions against Russia and Iran, many developing nations are seeking alternative currencies for trade, investment, and reserves. She added that the motivation to borrow in local or other currencies is driven by economic practicality.
Gustavo de Carvalho, an analyst specializing in Russia-Africa relations, emphasized that the push for an alternative to the dollar stems more from practical considerations than moral concerns. Countries in the Global South are increasingly questioning the risks associated with relying on a single currency susceptible to political manipulation.
While the notion of a separate currency for BRICS has been discussed, experts express skepticism. Creating a BRICS currency would necessitate the establishment of a framework of institutions with common standards and values, which is a challenging feat.
Danny Bradlow, a professor at the University of Pretoria, expressed doubts about returning to the gold standard or adopting cryptocurrencies as viable options. He pointed out the impracticality of cryptocurrencies for international trade and questioned the feasibility of a unified BRICS currency due to the diverse economies within the coalition.
Despite the debate surrounding currency alternatives, the primary goal of BRICS is not to entirely replace the dollar but to provide greater diversity in global financial interactions. This push might lead to increased use of local currencies in trade settlements, as evidenced by Russia’s trading in rubles with China and India.
Although challenges such as convertibility and reserves persist, experts agree that the dollar’s dominance will remain unchallenged for the foreseeable future. While the notion of alternatives is gaining traction, the dollar’s role as the world’s premier reserve currency and reference for commodity prices seems secure.
