The world is swiftly changing, and with BRICS now essentially becoming BRICS+ the US dollar could be in danger. The BRICS alliance has called for the abandonment of the US dollar as the primary currency for international trade, and with BRICS soon to control around. 80% of the world’s oil production, this is significant news. Comprising Brazil, Russia, India, China, and South Africa, the BRICS is set to reshape the world’s geopolitical dynamics in ways that could span decades.
The USD’s Current Dominance
For decades, the US dollar has been the dominant currency and the world’s primary reserve currency, with all international trade being settled with USD. This position has granted the United States many advantages, including the ability to finance its deficits, influence global financial systems, and exert diplomatic power. However, growing concerns about over-reliance on the dollar and its potential vulnerabilities have prompted countries to seek alternatives, and now those alternatives have come home to roost.
BRICS’ Strategic Move
BRICS’ decision to shift away from the US dollar reflects a strategic move towards diversification and greater economic autonomy. The member nations have agreed to use their own local currencies for trade, which would likely boost their own local economies. With five of the six new BRICS members being oil-producing nations—Saudi Arabia, the UAE, Egypt, Iran, and Ethiopia—the alliance aims to bolster its economic resilience by promoting the use of local currencies for cross-border trade settlements. Argentina, the sixth member, has gained entry due to its facilitation of trade settlement in local currencies for multinational corporations.
Impact on the USD and Global Economy
The move away from the US dollar has the potential to undermine its long-established dominance and weaken the country’s role, both economically and diplomatically and would diminish the US’ ability to impose economic sanctions effectively.
Moreover, the BRICS alliance’s shift has broader implications for the global economy. The move aligns with a trend of countries seeking to reduce their dependence on the dollar and establish alternative payment mechanisms. This trend has been particularly notable in recent years among countries subject to US sanctions or broader geopolitical tensions.
Challenges and Opportunities
While the shift away from the US dollar presents challenges for the existing global financial order, it also opens up opportunities for BRICS countries to strengthen their own currencies and develop alternative financial systems. Creating a framework that promotes the use of local currencies could potentially insulate member countries from the volatility associated with the US dollar and enhance their negotiating power in international trade agreements.
The fact that BRICS will soon have such a dominant share of global oil production, only adds strength to these novel initiatives and changes.
A Counterweight to the G7
The BRICS alliance’s move to distance itself from the dollar can also be seen as a strategic attempt to establish a counterweight to the influence of the G7, whose share of the global GDP has been gradually declining.
Conclusion
BRICS’ decision to shift away from the US dollar as the primary currency for international trade marks a turning point in world history. The move reflects a broader trend of countries seeking alternatives to the dollar’s dominance, and a breakaway from the United States diplomatically. As the alliance continues to promote the use of local currencies and strengthen economic ties, the effects of this decision will continue to reverberate across the international economic stage, reshaping the way nations engage in global trade and diplomacy.
