Home ›› 21 Oct 2022 ›› Opinion
The entire world is witnessing the price spiral of the commodity. Most of the people are the victims of such a wave of commodities. We all see that this is due to the war and inflation. The battle is not only the reason; the war has dramatically warped the economy of the entire world. Big economic countries like the US and its allies have imposed sanctions on Russia’s oil and gas companies. This sanction increases tension for many countries because the energy price increase accelerates the price of top products. Maximum countries of the world import oil from OPEC countries, including Russia. Such oil import payment is usually settled in dollar. The USA fires to this fuel using the dollar as a weapon.
Most countries use the SWIFT system to determine the balance of payment and the maximum transaction that occurs through the dollar. In the meantime, the Federal Reserve of the USA has increased interest rates three times this year.
Mass people blame the Russian invasion on Ukraine. But increasing interest rates by Fed is vital in such a spiral. Suppose the interest rate is higher in the USA than in other countries. In that case, there is a great chance to transfer the amount to American or American banks or Banks supported by the US located in any country via Money Laundering, Hundi, by any Third Countries due to gaining returns without any business activities.
Probably, when USA’s economy is under crisis or intends to turmoil any country’s economy, they might do this for survival through the enact Dodd-Frank Act on July 21, 2010, in the USA to regulate the economy. There is a contrary opinion of the dollar. Many economists say that the dollar alternative is like the MAD (Mutually Assured Destruction) theory of nuclear bombs, i., e harmonize of international currencies.
However, let’s discuss how another currency will stand against USA’s dollar and how its power will be eroded in stealth. Can it become another currency stand against dollar?
In our country, in the reserve currency basket, another currency has increased from 2017 to August 2022. In 2017 Chines Renminbi was 0.4 %; in August 2022 is 1.5%; Euro was 3.8%. It is now 4.9%, the Pound was 3.4%, but it is now 4.4%; gold was 1.8%, it is now 2.8% SDR ( Special Drawing Rights of IMF) was 4.2%, but it is now 2.8%. Others 3.8%, it is now 3.6%. From the analysis of the country’s Reserve Currency in last five years- in the basket of Reserve Currency, Dollar was about 81% in 2017; it is worth 75%. About 6% of the dollar from the basket of reserve has been decreased. Most probably, it was for the declaration of the Renminbi as part of the reserve by IMF.
Here is confusion about the Renminbi vs. Yuan. Are both the same? The answer is here: “Renminbi is the official currency of the People’s Republic of China, “meaning “people’s currency” in Mandarin. A yuan is a unit of currency. A famous analogy draws from the British pound sterling vs. the Pound: Renminbi is the name of China’s currency, just as sterling is the currency of Great Britain.”
However, in 2017, a 323-million-dollar equal Renminbi was used to settle foreign trade in Bangladesh. It is now 528 million equivalent dollars which signal that it is coming with strength in the currency competition. However, there are many opinions on maintaining the country’s Reserve Currency which currency is to be kept or gone. The reply will be made last part of the article.
Now we will find the alternative of the dollar as a Reserve Currency. It is not an easy task to push off the dollar instantly. Because the US has a firm policy, regulation, and treasury bonds, its approach is more transparent than China and Russia. However, Russia and China have broad geographical areas and people. Both countries belong to BRICS. According to Arab News, BRICS collectively represent about 27% of the world’s geographic regions and 42% of the world’s population. The estimated population lives in about 3.21 billion. Except for South Africa, the other four BRICS countries are the world’s biggest and have the highest population.
The larger part of the production of oil is from BRICS Countries. BRICS will be stronger than previously if KSA joins it. Recently we heard the news about it the declaration of reduction of oil production by OPEC pressurized by Saudi Arabia. There is a strong probability that KSA, Turkiye, and Egypt to join BRICS. About 26 percent of steel & iron, 40 % of corn, and 46 % of wheat are produced by BRICS countries. It has a 4.5 trillion combined forex reserve. The entire world GDP’s 32 percent is from five countries of BRICS.
A major part of the population of the Middle East is in four countries -Iran, Saudi Arabia, Egypt and Turkiye. About 40 per cent of total productions in Gulf Countries come from these four countries.
BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Goldman Sachs economist Jim O’Neill coined the term BRIC (without South Africa) in 2001, claiming that by 2050 the four BRIC economies would come to dominate the global economy. South Africa was added to the list in 2010.
However, after joining Saudi Arabia, about 42 per cent of world oil production will be in BRICS. If these countries, as mentioned earlier, join BRICS, about 40 % of the total GDP and 60 per cent of the consumer market of the entire world will be controlled by it.
The 14th BRICS summit was held on July 24, 2022 in China. Some initiatives stand against the USA, World Bank, and SWIFT. It calls for a parallel payment system to counter US hegemony which is the complete alternative to SWIFT.
A bank named “New Development Bank” was established in 2015 by BRICS countries – Brazil, Russia, India, China, and South Africa. The bank’s membership is open to members of the United Nations. NDB commenced the admission of its first new member countries in the second half of 2021. Bangladesh, the United Arab Emirates, Egypt, and Uruguay have since joined the bank.
Many Economists consider that New Development Bank will be the alternative to World Bank. These reasons are enough to fight against the US dollar, and a new currency developed by BRICS must replace the dollar’s market share.
Is it easy to push off the US dollar? Let’s discuss the part of the history of the dollar. From world war -I to world ward war-II US dollar was not a reserve currency.
Though World War-I started in 1914, the USA was engaged in tidying up their economies strongly. During World War-I, most of business and economies of USA were involved with allies’ power countries. Figuring showing for a few years has proved that GDP and Export of the US from 1913 to upward few years were swamped with tidying up of their economy strongly. In 1913 FY export of the USA was 4.2 billion USD. It reached 6.2 billion USD after a four times increase of 50 % in 1917. World war-I was ended in 1917, but there were many changes occurred. During this time, Ottomans lost their monarchy, oil fields were discovered in Saudi Arabia. During World War II, most countries, mainly European countries, kept their gold as a reserve in the USA. A study shows that the world’s gold reserve was 20,000 tons in 1942. Most of the countries of Europe were involved in the war. It was a blessing for America because the US did massive business with this chance of war. Only one exception occurred for America. It was the Pearl Harbor attack by Japan.
Second World War ended on September 02, 1945. In the meantime, Bretton Woods Agreements were made from July 01 to 22, 1944. About 730 delegates were present from 44 countries. All representatives consented to maintain the US dollar as a Reserve Currency based on gold.
The dollar had been stronger after the declaration of Richard Nixon for the removal of the dollar from the gold standard on August 15, 1971. His strategy was to insert the dollar with oil instead of gold known as the petrodollar.
From 1944 to till, why did US dollar dominate widespread? The probable reasons are here-
US has a more diversified economy. It has strong service sector and machinery sector. The most advanced technology belongs to the US. It has strong media and education sector.
All sectors of the US are more predictable for policies and strategies as the USA can print dollars, whereas other countries earn dollar. So, America contributes a lot of dollars as donations and grants to the developing and least developed countries.
Now the question is- Can BRICS supersede the US dollars?
It may be possible or may not be possible due to the following reasons-
There is a strong democracy in the USA, whereas a limited or no democracy exists in BRICS countries.
The entire market of the USA is more predictable than BRICS belonged countries.
The US has sector-wise robust systems.
There has massive doubt among the leaders of BRICS, whereas the US does not have doubt or less doubt among the leaders.
The market of BRICS is volatile.
Due to weak strategies, lack of democracy, and less trust among the leaders, BRICS cannot supersede the World Bank or the dollar in the next few years.
For example, Putin thinks he has some friends in countries where he gets support. In September and October, Putin fought alone against US and its allies. Why have such situations been made? Lack of commitment or doubt or democracy?
The writer is a banker and studies ACCA. He can be contacted at badrul01913@gmail.com
