Will the BRICS Manage to Push for a Counterbalance Against the Dollar?
Brasilia's support for an eventual monetary unit adds to the plans of China, Russia and other Asian countries with the aim of reducing or eliminating the power of the dollar in their commercial transactions .
Photo: Alan Santos/PR
LatinAmerican Post | Luis Ángel Hernández Liborio
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Leer en español: ¿Lograrán los BRICS impulsar un contrapeso contra el dólar?
President Lula da Silva has publicly expressed his support for creating an alternative to the US dollar, whose hegemony is no secret. Brazil is not alone in this idea, the other members of the BRICS, mainly Russia and China, aim to get rid of the dollar as currencies for their commercial transactions. Although it is an idea that seems far-fetched, it has also caught on in places like France, the Middle East and South Asia.
The “Arrogance” of the Dollar
After World War II the dollar was adopted as the main currency, its use in all areas of the economy gave it immeasurable power. However, it has not been free of problems, the crises derived from the dollar drag the whole world with them due to this dependence on this currency. With the end of the Cold War, the dollar has remained one of the greatest examples of American power to the world, but the quest for a multipolar world has also put the dollar and its power in the spotlight.
Voices wanting to replace the dollar as the currency of exchange come from all over the world. From China, India, Russia, and Brazil to Middle Eastern countries like the United Arab Emirates, who see a direct impact of the power of the dollar on their economies. The BRICS together account for more than 25% of world GDP. The mere intention of mentioning the possibility of leaving the dollar behind should be taken seriously by the United States. The war in Ukraine and the US trade war with China have motivated the Russians and Chinese to take action on the matter, a fact that has been seconded by other economies.
The BRICS Proposal
Russia prepared for years to face the coming war. By taking Crimea, the first sanctions on its economy fell, which were increased considerably with the invasion of Ukraine last year. One of the steps to follow was to reduce the dependence on the dollar in its commercial transactions, something difficult if we consider that energy and agrochemicals are two of its main export products.
Thus, the BRICS are heading towards the creation of an alternative to the use of the dollar, either through a digital currency, a single currency such as the euro or another form not yet defined, according to the words of the vice president of the Russian Duma, Alexandr Babakov.
Meanwhile, strengthening the use of local currencies could be the guideline for promoting an eventual single currency. The position of the Association of Southeast Asian Nations (ASEAN) is in the same vein, but not only with the dollar, but also with the yen, the pound sterling and the yuan. His proposal is aimed at supporting transactions with local currencies, as well as Western payment processors such as Visa and Mastercard. The objective is to eliminate dependency and that it can be taken as a “weapon” in political terms.
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A Proposal with Good Intentions
The idea of the BRICS to reduce or eliminate dependence on the dollar is also shared in ASEAN and even in France. President Macron has insisted on this issue as one of the problems that Europe must address, especially during the presidency of Donald Trump and his marked economic secrecy. Although Joe Biden returned the United States to its common dynamic, Europe has learned that any change in US economic policy can severely affect them. Another situation like the Trump government would hit the European and global economy hard, so the need to create alternatives is natural.
But to Americans, this seems like just a letter of good intentions going nowhere. It is not the first proposal in history to get rid of the dollar as a bargaining chip. What can be different so that this goes from being mere intentions to being a reality? Curiously, the United States is the one driving this change. Cornering China and Russia is something that could go wrong for US policy. If the yuan manages to generate a stable ecosystem leading emerging currencies, it could put the hegemonic currency in trouble.
Saudi Arabia joins the list of countries that are willing to trade in other currencies, and this is a purely commercial issue, beyond the political one. Although the Saudi house is an ally of the North Americans in the region, they are also aware of the new economic dynamic that is being generated, so they cannot remain outside. The other oil-producing countries in the region will not miss the opportunity to keep their trade afloat, even if it means leaving the dollar behind. The United States is confident in the power and weight of its currency, while China, India, Brazil, Russia, Europe, the Middle East and ASEAN are desperately considering how to produce a realistic alternative, regardless of the consequences for the world economy to dethrone the dollar.