De-dollarisation was the biggest talking point during the recent assembly of BRICS nations in Johannesburg, South Africa. Along with the BRICS nations, several other states have also been looking to drop the dollar while making international purchases. In spite of these major developments, several global commentators continue to believe that the American currency will maintain its global foothold. While the dollar is currently too powerful to be brought down instantly, efforts are being made by countries worldwide to end their domination of global trade and currency exchange. Several understandings have been made in the recent BRICS Summit that have numbered the days of the dollar’s unequalled demand in the world.
Inclusion of top oil-producing countries in BRICS
The biggest strength of the US dollar has been its use in the trade of oil across the globe. A majority of countries on Earth used to buy oil using US dollars from their foreign reserves, which naturally made the dollar the most demanded currency for decades. However, the BRICS nations have now welcomed some of the biggest oil-producing countries – Saudi Arabia, Iran and the United Arab Emirates. They have also included Argentina, Egypt and Ethiopia in the block. Now that these oil-rich countries are a part of BRICS, they will explore the options of dropping the US dollar, thereby taking a major stride in de-dollarisation. In the wake of American and Western support to Ukraine, Russia has been openly calling for the dropping of the US dollar in years to come. The European nations, however, will continue to trade in dollars, which still ensures the dollar’s strength in the future, but that strength will become extremely limited in the coming decade.
Calls for bilateral and multilateral trade in local currencies
Another major strength of the US dollar was that most countries would not only use it to purchase oil but also for the trade of other essential goods and services, such as the purchase of weapons, raw materials and so on. However, BRICS nations have developed an understanding of trade in local currencies. For example, India had purchased Russian crude oil recently in Indian Rupees instead of the US dollar after the United States government put sanctions against the purchase of Russian oil and freezing the use of dollars for Russia. All the member states of BRICS have recognised the potential economic threats of depending too much on the US dollar after these events, and thus, they are engaging in dialogues to find ways in local currency trade. After Russia sold their crude oil to India in Indian Rupees, they had concerns over the excess availability of Indian currency in their foreign reserves, which may not be required in the near future. To solve this problem, Russia has purchased bonds from the Indian government, which will likely shoot up in value as India’s economy grows in the next two decades.
Change in global economy with BRICS expansion
A huge list of nations have formally applied for full-time membership in BRICS. Except for South Africa and China, all other member nations, including India, Russia and Brazil, have held their own set of concerns regarding this expansion. Nevertheless, the BRICS nations have agreed to increase their economic and diplomatic cooperation with all the friendly states of the bloc. These include African and Latin American nations, who are looking to avoid coming under the influence of the West. One of the key objectives of BRICS is to provide a counter to Western domination in global affairs. BRICS nations will thus engage in the possibilities of a Free Trade Agreement with BRICS-friendly nations along with other trade understandings.
In conclusion, the status of the US dollar’s unchallenged domination in the world is drastically about to change in the near future.
Image source: Reuters