The last two decades have witnessed profound geopolitical and economic transformations that have reshaped the balances of global power. At the heart of these transformations stands the BRICS group (Brazil, Russia, India, China, South Africa, and new members), which is no longer just an emerging economic bloc but has become a driving force towards a multipolar world system. One of the most prominent objectives of this group, whether explicitly or implicitly, revolves around undermining the ongoing dominance of the US dollar in global trade and financial reserves. The pursuit to dethrone the dollar is a long-term strategic goal aimed at restoring economic sovereignty for developing countries and reducing exposure to sanctions and foreign monetary policies, which requires a rapid and strong shift in the international financial structure.
The absolute dominance of the US dollar, established after the Bretton Woods agreement in 1944, has been a fundamental pillar of the economic and political power of the United States. This dominance, known as the global reserve, grants Washington huge privileges, notably the ability to finance its trade deficit by printing the currency demanded by the world, and the ability to impose effective sanctions through control over global payment networks like SWIFT. However, the increasing use of dollar authority as a geopolitical weapon, especially after the 2008 global financial crisis and the recent wide-ranging sanctions imposed on Russia, served as a wake-up call for other major countries, especially BRICS members.
BRICS countries have realized that excessive reliance on the dollar exposes their economies to undesirable volatility and makes them vulnerable to external political pressures. The swift and clear shift towards reducing dollarization was driven by strategic necessity. Russia and China, the biggest victims of Western financial sanctions, began adopting bilateral settlement mechanisms in their own currencies. For example, the proportion of trade between Russia and China settled in yuan and rubles has risen significantly, surpassing reliance on the dollar in the energy and basic commodities sectors.
The most prominent strategy followed by BRICS is to promote the use of national currencies in bilateral trade. This move represents a direct challenge to the central status of the dollar in cross-border transactions. This trend has expanded to include other countries outside the traditional bloc, with nations like Iran, Turkey, and the United Arab Emirates showing increased interest in trading in local currencies with the main members. This trend is not limited to trade only but extends to financial markets and central bank reserves. These countries aim to increase their holdings of gold and other currencies as safe alternatives to dollar-denominated reserves.
Alongside bilateral efforts, the establishment of alternative financial mechanisms to enhance independence is a pivotal step. The New Development Bank (NDB), established by BRICS as an alternative to the Western-dominated World Bank, serves as a prominent example. The bank focuses on financing infrastructure projects in member and developing countries using various currencies, reducing the need for dollar borrowing.
However, the larger and more ambitious challenge is to develop a common currency or an automatic clearing mechanism operating outside the dollar’s realm. At the recent Johannesburg summit, leaders seriously discussed proposals aimed at establishing a payment system based on local currencies or even a digital reserve currency backed by a basket of basic goods. The success of such a system would require immense monetary and political coordination among countries with diverse economic systems, such as centrally planned China and democratically market-oriented India.
It must be acknowledged that dethroning the dollar is a slow and complex process and not a sudden event. The dollar benefits from immense inertia, supported by an established financial infrastructure, an unmatched American debt securities market in terms of liquidity and depth, and the relative transparency (despite limitations) of Western legal systems compared to some emerging markets. BRICS countries cannot replace the dollar in the short term, but aim to gradually erode its share.
The rapid shift in BRICS's role, especially after the recent expansion to include countries like Egypt, Iran, and Saudi Arabia, indicates an acceleration of efforts to decouple their economies from the traditional financial system. Including Saudi Arabia, one of the largest oil producers and a major supplier of dollars through oil pricing, carries profound implications for exploring alternatives to the oil-for-dollar or petrodollar mechanism.
In conclusion, the shift led by BRICS countries towards challenging the hegemony…
