This article was last updated on September 1, 2023
BRICS+ and De-dollarization
With the recent evolution of the BRICS into BRICS+ thanks to the addition of Saudi Arabia, Iran, Ethiopia, the United Arab Emirates, Argentina and Egypt projected to occur in January 2024, the appearance of this:
…on the website of the World Economic Forum particularly interesting given the group’s history of promoting a multipolar world.
The WEF refers to an article that appears on the website of the Institute for Security Studies (ISS), “Africa’s leading multidisciplinary human security organization” which was established in 1991 entitled “BRICS+ and the future of the US dollar“:
Let’s look at some quotes from the article which opens with this:
“Russia’s invasion of Ukraine and intensified United States (US)–China competition have had two important geostrategic consequences. They have blown new life into the European Union (EU) and North Atlantic Treaty Organization, and accelerated expansion of the Brazil-Russia-India-China-South Africa (BRICS) bloc’s role and membership, as confirmed at this week’s Johannesburg summit.“
The article goes on to note that these trends have “hastened the shift away from a Western-led global order towards a new, still-to-be crafted era of more uncertain and fluid multipolar connections” and that the next 30 years will see this trend continue to unfold.
Here is an interesting quote:
“BRICS is cloaking itself in resentment against the West, particularly with the lingering effects of colonialism, imperialism and sanctions by leading Western countries. Another factor is the lack of global governance system reform, including the United Nations (UN) Security Council, World Trade Organization, and international finance institutions.
And although countries’ motivations for wanting to join BRICS differ, few global south nations will exchange one hegemon (the US) with another (China).“
While that may be true, one cannot deny the growing influence of China and shrinking influence of the United States in the global economy as shown here:
According to the author, the shift toward de-dollarization is likely to take place once the BRICS+ economy surpasses that of the West which is projected to occur in about two decades. That said, the author notes that BRICS members are united in their desire to move away from the dollar-dominant international system for two reasons:
1.) when the United States Federal Reserve hikes interest rates, it can result in turmoil in smaller economies that are not a result of their own fiscal issues.
2.) the dollar provides the United States with an extremely powerful hammer with which to protect its own interests.
The author projects that rather than offering a single replacement for the U.S. dollar, the currencies of BRICS member nations will become increasingly powerful. This is already occurring for two reasons:
1.) BRICS bilateral trade payments are already being fulfilled in each others’ national currencies.
2.) BRICS members are diversifying their foreign reserves away from the U.S. dollar into euros, Swiss francs, British pounds and Japanese yen.
The author concludes that the negative shift in the power of the U.S. dollar will occur once world oil and natural gas prices are no longer set in U.S. dollars (petrodollars). The acceptance of both Saudi Arabia and the United Arab Emirates into the BRICS block is a significant move in this direction. Rather than being replaced by a single BRICS-based currency, the world is likely to see a slow reduction in the power of the dollar as its importance is surpassed by currency blocs that are based on trade among nations in South America, West Africa, the Middle East and, most importantly, China.