The United States dollar has dominated all other currencies for 80 years. A group of developing countries seem to be tired of the West’s dominating presence over global governance & finance and is determined to take it down.
The process in de-dollarisation is ‘irreversible’ and ‘gaining pace’, the dollar has been the world’s principal reserve currency since the end of World War II, it is estimated to be used in more than 80% of international trade.
Strong calling for a global shift away from dollar dominance are not new, nor are they unique, experts say recent geopolitical shifts and growing tensions between the West, Russia & China have brought them to the fore.
In the year 2022, Western sanctions over Russian’s invasion of Ukraine froze half of Russia’s foreign currency reserves, and removed major Russian banks from SWIFT. Later in the same year, the US imposed restrictions on exports of semiconductor technology to China.
As the US weaponizes the dollar in the Russian and Iran sanctions, there is increasing desire by developing countries to seek alternative currencies for trade, investment, and reserves, also developing alternative multilateral clearance systems outside of SWIFT.
Since the US Federal Reserve has raised interest rates in recent years, developing countries have suffered widely from paying higher interests on dollar debt also, battling the exchange rate impact from a strong dollar.
There are several news on the fore, considering the possible currency options of Dollar. At the recently held BRICS summit, leaders of Brazil, India, China and other countries have discussed the possibilities of the creation of a separate BRICS currency.
Discussions at BRICS suggested that creating the BRICS currency requires a set of institutions. Institutional creation requires common standards and underpinning values which are difficult to achieve, although not impossible. Some analysts proclaimed the idea of a BRICS currency as a “non-starter” and the idea to create an alternative to the dollar seemed to be completely fanciful and unrealistic.
For BRICS leaders, the rationale for alternatives to the dollar is similar to that of changing the global governance architecture in general. Even if the BRICS create a common currency, it may eventually work similarly to the Euro, which has still not been able to challenge the dollar’s dominance. The question remains, if the BRICS currency is created, will it be able to challenge the dollar’s dominance?
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