The dollar’s dominance of global trade and investment flows is facing a slew of new threats as many countries push plans to boost the use of alternative currencies.
BRICS nations have displayed increased cooperation and intend to change the dollar-dominated financial system. Within BRICS, Russia and China are leading the de-dollarisation initiatives to safeguard their interests stemming from their geopolitical rivalry with the US, and considering the risk of future sanctions against them. India, Brazil, and South Africa have supported statements by BRICS on altering the global financial system and creating more opportunities to promote the use of local currencies for international trade. All BRICS members have taken steps to de-dollarise and improve their autonomy in the global financial system.
The new reserve unit would be based on a basket of currencies from the group’s members: Brazil, Russia, India, China, and South Africa.
Algeria, Argentina, and Iran have applied to join BRICS. They are not the only potential new BRICS members as Afghanistan, Egypt, Indonesia, Saudi Arabia and Turkey are also interested in becoming members. In a further demonstration of growing interest in joining BRICS, the finance ministers of a number of countries – Kazakhstan, Nicaragua, Nigeria, Senegal, Thailand and the United Arab Emirates – attended last year’s BRICS expansion dialogue.
The BRICS bloc of Brazil, Russia, India, China, and South Africa is working “to develop a fairer system of monetary exchange”, to challenge the “dominance of the dollar”, South Africa’s foreign minister has revealed.
Saudi Arabia publicly confirmed that it is considering selling its oil in other currencies.
Financial Times ran a piece noting that central banks were accumulating gold at a rate not seen in 55 years. In the third quarter of 2022, analysts estimate that almost 400 tonnes of gold were bought by central banks. That much gold would take around 16 semi-trailer trucks to transport.
In November, traders in the gold market noted that there was a huge buyer entering the market and purchasing very large volumes of gold — a so-called ‘whale’. In December it was revealed that this whale was the Chinese central bank. But it wasn’t just the Chinese buying gold. Other buyers include Turkey, India, Uzbekistan, Egypt, Qatar, and Iraq. It is worth noting that many of these countries have expressed an interest in joining the BRICS+ alliance.
De-Dollarization and CBDCs: Monetary Historian Suggests a Great Reset Is Imminent
In an interview published on Feb. 16, 2023, Miles Franklin executive Andy Schectman discussed his economic predictions with Michelle Makori, the lead anchor and editor-in-chief at Kitco News. Schectman expects a large portion of the world to abandon the U.S. dollar and he also predicts a “tsunami of inflation.” With rising inflation, Schectman suggests that the interest rate set by the U.S. Federal Reserve will continue to rise and a “collapse” in asset prices will soon follow.
And all of a sudden, bang, all of the countries that had to hold dollars for the last fifty years, no longer have an interest in holding them. And if they all start to dump dollars, and I think it would happen quickly, you would have a tsunami of inflation hitting the shores of the West.
This New Money will Destroy the US Dollar
BRICS nations have formed an alliance to overtake the US dollar as the new global reserve currency.
These same countries are believed to be the future dominant suppliers of manufactured goods, services, and raw materials by 2050.
These 5 nations represent:
42% of the world’s population
23% of the world’s GDP
30% of the world’s territory, and
18% of global trade
These 5 nations also produce a significant portion of the world’s resources:
26% of Oil
40% of Corn
46% of Wheat
Brazil, Russia, India, and China are among the world’s ten largest countries by population, area, and GDP, and the latter three are widely considered to be current or emerging superpowers. All five states are members of the G20, with a combined nominal GDP of US$26.6 trillion (about 26.2% of the gross world product), a total GDP (PPP) of around US$51.99 trillion (32.1% of global GDP PPP), and an estimated US$4.46 trillion in combined foreign reserves (as of 2018).
Saudi Arabia is one of the world’s largest exporters of crude oil, holding 15 percent of global oil reserves, and a founding member of the Organization of Petroleum Exporting Countries. Meanwhile, Russia is a member of OPEC+. This is a larger grouping that includes the 13 members of OPEC plus 10 other oil-producing nations, with the latter led by Russia.
Egypt, the largest of the three potential BRICS members in terms of population (about 102 million), is also an important petroleum producer and exporter.
BRICS Nations Plan to Create a “New Global Reserve Currency”
Russia and members of the BRICS countries the end of June met at the 14th BRICS Summit to discuss world affairs. During this meeting, it was revealed the leaders of these five major emerging economies are in the midst of “creating a new global reserve currency.”
Russian President Vladimir Putin announced that the five-member economies — Brazil, Russia, India, China, and South Africa plan to issue a “new global reserve currency.”
“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out”
But the U.S. dollar hegemony may soon come to its end. Saudi Arabia, the traditional close ally of the United States, has expressed the kingdom’s desire to join BRICS – a group of 5 major emerging economies comprising Brazil, Russia, India, China and South Africa. The bloc covers about 26.7% of the world’s land surface and 41.5% of the world population.
More importantly, the BRICS bloc has a combined nominal GDP (gross domestic product) of US$26.6 trillion – about 26.2% of the gross world product or a combined GDP (PPP) of around US$51.99 trillion (32.1% of the world’s GDP PPP). All the five nations of the bloc are members of G20 or Group of Twenty. Of course, China has the largest GDP of the BRICs country at US$18.32 trillion.
It means the BRICS, with Saudi as its newest member, could finally undermine the U.S. dollar dominance. If Saudi starts trading its crude oil in “BRICS currency”, it may completely obliterate the dominance of petrodollar in global trade.
To understand how Saudi’s membership in BRICS could destroy the U.S. dollar hegemony, one has to take a journey back in time. After the World War I, the gold standard had been abandoned. When Europe was at its worst during World War II, a new international monetary system was adopted by delegates from 44 nations in Bretton Woods, New Hampshire, in July 1944.
Called the “Bretton Woods System”, it was decided that all the nations will adjust their currencies to the U.S. dollar, which in turned was fixed to gold at US$35 an ounce. The 44 allies believed the standardization will reduce global economic instability. Delegates to the conference also agreed to establish the International Monetary Fund (IMF) and what became the World Bank Group.
Everything went smoothly till the early 1970s, when the U.S. lost the Vietnam War. The irresponsible increase domestic spending on President Lyndon Johnson’s Great Society programs and the skyrocketing in military spending caused by the Vietnam War forced U.S. President Richard Nixon to suspend the dollar’s convertibility into gold in August 1971.
In 1974, the petrodollar system was fully operational in Saudi. By 1975, all OPEC oil-producing nations agreed to price their oil in dollars in exchange for the so-called generous offers by the United States. Because every country needs oil, they would buy from Saudi or OPEC nations. And because the oil is being sold only in U.S. dollars, they must have dollars to buy oil.
When a country does not have a surplus of U.S. dollars to buy oil, the easiest way to obtain U.S. dollars is through the foreign exchange markets. Therefore, it greatly benefits the U.S. because the petrodollar increases global demand for U.S. dollars, increases global demand for U.S. debt securities and gives the U.S. the ability to buy oil with a currency it can print at will.
Virtually all global oil transactions are settled in U.S. dollars – until the Ukraine War changes the landscape. It was a mistake when the Western powers seized US$630 billion of foreign reserves belonging to Russia. Suddenly, other countries realize they could lose their foreign reserves in U.S. dollar, the same way the currency lost its value after the U.S. refused to honour its pledge by ending the dollar’s convertibility to gold in 1971.
Today, Russia demands ruble for oil from unfriendly countries, while China and India have started paying for Russian oil and even other trades in ruble, yuan and rupee. Now, if Saudi Arabia, the largest exporter of crude oil in the world, were to join the BRICS nations, it could lead the OPEC to use “new global reserve currency” introduced by BRICS as a new denomination for oil.
Saudi will not dump the U.S. dollar entirely, but it would be disastrous to the U.S. even if the kingdom opens to selling its crude oil in other currencies. And if Iran, which has the world’s second largest gas reserves, also joins BRICS and sell its commodity in BRICS currency, the U.S. dollar would be further undermined. China and Japan have already started selling dollars to prop up their currencies.
Very few knew that Iraq’s Saddam Hussein and Libya’s Muammar Gaddafi relentless attempts to derail the petrodollar had led to the invasion, assassination, and extermination. That’s how important petrodollar is to the United States. But BRICS is more powerful. With China’s economic powerhouse and Russia’s military superpower behind BRICS, the entrance of Saudi would spell the end of dollar dominance.