Mighty dollar’s rule facing many mutinies

The dollar that has ruled the world at least since the end of World War II is now facing mutinies because of the US power to unilaterally impose sanctions and influence financial policies, as well as ideology and the rise of China as an international economic powerhouse.

A surge of financial crises facing several developing countries is another factor in nations looking for alternatives. The challenges are still mutinies, with BRICS—the group of Brazil, Russia, India, China and South Africa—having a measure of credibility, but there isn’t yet a revolution.

Russia’s invasion of Ukraine and the sanctions imposed on the major energy exporter have brought a focus to the incipient mutinies brewing for a while.

This has been a catalyst for the BRICS to head a challenge that could have elements of credibility as never before. Two of the members, China and India, rank among the top five global economies, Brazil ranks eighth and Russia eleventh, giving it economic heft as they account for almost a quarter of the global gross domestic product.

A former special advisor at former President Donald Trump’s White House Council of Economic Advisers, Joseph Sullivan, said that a BRICS currency would pose a bigger challenge than individual currencies including the Yuan.

“It’d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, the United States, but the entire G-7 (the group of major Western economies) weight class put together”, he wrote in the journal, Foreign Policy. China, as the world’s top trading nation, has a vested interest in ousting the dollar, and Russia is forced by sanctions. The driver for the other three is the energy imports from Russia.

The BRICS is seeking to increase the use of the members’ currency for mutual trade as a first step towards a common currency, according to South Africa’s BRICS envoy Anil Sooklal, who is preparing for the summit in June.

It is also getting membership requests from several countries that could be participants in dedollarised trade. Many nations have joined the chorus questioning the might of the dollar.

Iran with an economy of a noticeable size was among the first to articulate dedollarisation in recent years as it faced the onslaught of sanctions even as it fashioned workarounds.

France with a history as a European ideological maverick is the latest to fire a warning shot, seemingly breaking ranks with the West: After a flamboyant visit to China, Frances’s President Emmanuel Macron told Politico that Europe should cut its dependence on the “extraterritoriality of the US dollar”.

Acknowledging the rise of China, he added that if tensions between the “two superpowers” rose “our strategic autonomy” will be compromised “and we will become vassals”.

Under President Lula Da Silva, Brazil is further pushing for dedollarising trade and moving to national currencies. During a state visit to China, he denounced dollar dominance and said the developing countries should find an alternative to it.

On a bilateral basis, South America’s largest economies, Argentina and Brazil, are working on a common currency for trade and finance while retaining domestically their peso and real.

Malaysia’s Prime Minister Anwar Ibrahim suggested creating an “Asian Monetary Fund”, also during a visit to China, according to China Daily.

Major energy exporter and investor Saudi Arabia’s Finance Minister Mohammed Al-Jadaan has also said that his country would be open to dedollarised trade. Cryptocurrency promoters are a big, emerging constituency for dedollarisation hoping Bitcoin or another digital currency gets accepted.

But they are an amorphous group and cryptocurrency lacks state-backing or a credible regulator.

Meanwhile, countries like India and China have rolled out digital currencies that are essentially electronic versions of their existing bank notes—and, in any case, large international transactions are done electronically.

There have been several scenarios painted for developing a BRICS currency. Sooklal told the Russian news agency TASS that the greater use of national currencies by BRICS countries in investments and other transactions also is a prerequisite to moving on to a common currency.

Society for Policy Studies