BRICS Takes Center Stage
In a virtual address to the BRICS summit in Johannesburg, Russian President Vladimir Putin declared the process of de-dollarisation as "irreversible" and "gaining pace". The BRICS summit brought together the leaders of Brazil, India, China, and South Africa, signaling a united effort from Global South countries to challenge the dominance of the US dollar in global finance.
A Long-standing Dominance Faces Growing Opposition
For the past eight decades, the US dollar has stood unchallenged as the world's principal reserve currency. However, a coalition of developing nations, dissatisfied with the West's stranglehold on global governance and finance, is determined to reshape the existing power dynamic.
While calls for an alternative to dollar dominance have echoed for years, recent geopolitical developments have thrust them into the forefront. Growing tensions between Western powers, particularly Russia and China, have intensified the desire for a shift away from the dollar's grip. Sanctions imposed by the West on Russia and China, coupled with the weaponization of the dollar, have driven developing nations to explore alternatives for trade, investment, and reserves.
A Practical Necessity: Seeking Alternatives for Stability
The impetus behind Global South countries' push for an alternative currency is more rooted in practicality than ideology. The recent application of sanctions has highlighted the risks of relying on a single global currency susceptible to political manipulation.
As Shirley Ze Yu, a senior visiting fellow at the London School of Economics, notes, the motivation to borrow in local or alternative currencies is fueled by economic considerations rather than mere sentiment.
Amid discussions of breaking free from dollar dominance, analysts have speculated about potential alternatives. These range from utilizing a basket of currencies from BRICS nations, pegging a new currency to gold, to even considering cryptocurrencies. However, experts remain sceptical about the feasibility and practicality of these options.
Challenges in the Path Forward
While the notion of a BRICS currency has captured attention, experts are quick to point out the complex challenges that lie ahead. Establishing a new currency requires a foundation of institutions, shared standards, and values, a feat that is no easy task. Moreover, the differing economies and power dynamics within the BRICS group present significant obstacles to the creation of a unified currency.
Beyond Rivalry: The Goal of Choice and Balance
South Africa's BRICS ambassador, Anil Sooklal, emphasizes that the aim of seeking alternatives is not to replace the dollar but to provide the world with more financial choices. The intent is not to compete against the West but to address the disproportionate influence of the dollar in global financial transactions.
Pushing for Local Currencies and Overcoming Challenges
In the quest for alternatives, the use of local currencies has emerged as a viable option. Countries within BRICS and beyond have already begun trading in local currencies, reducing reliance on the dollar.
However, this shift raises concerns about convertibility and the need for greater reserves in partner currencies. This would require substantial changes in regulations, infrastructure, and the development of new financial systems to facilitate the seamless exchange of local currencies.
Experts caution that the transition to alternative currencies will be gradual and intricate, involving policy changes on a country-by-country basis. This transformation would necessitate a shift in capital controls, the establishment of alternative banking systems, and increased holdings of partner currencies.
A Long Road Ahead
While the desire to challenge the dollar's dominance is evident, the practicality of creating an alternative currency or system remains a formidable challenge. Experts highlight the importance of stability, liquidity, and ease of conversion that the dollar currently offers, making it the preferred choice for reserve currency.
As the BRICS nations continue to deliberate and explore options, the outcome of this endeavor remains uncertain. However, the discourse surrounding de-dollarisation signifies a growing determination among Global South countries to reshape the global financial landscape and reduce their vulnerability to political and economic manipulation.