BRICS Summit Focuses on De-Dollarization
The BRICS group of nations, a nine-country economic bloc led by Moscow and Beijing, recently held a significant summit. The event, which took place from October 22 to 24 in Kazan, Russia, attracted representatives from 36 countries, including 22 heads of state. A key focus of the summit was "de-dollarization", the concept of gradually eliminating the U.S. dollar as a reserve currency and the preferred medium for global exchange.
Russian President Vladimir Putin stated at the summit that while they do not reject the dollar, if they are prevented from using it, they must seek alternatives. However, many Western experts dismiss the idea of de-dollarization as unrealistic given the dollar's longstanding position as the world's standard currency for commercial transactions.
Views on De-Dollarization
Ariel Cohen, a senior fellow at the Atlantic Council, a Washington-based think tank devoted to international affairs, believes that building an alternative financial clearing system to accommodate transactions in rubles or yuan may be possible for BRICS members, but it's a long shot. Ambassador Matthew Bryza, a former White House and senior State Department official, echoed this sentiment, stating that the idea of de-dollarization had no prospects for moving forward as a result of the BRICS summit.
On the other hand, Mamdouh Salameh, a UK-based global energy expert, argued that the aim of BRICS isn't to replace the dollar as a global currency. Instead, it is to create their own financial system based on a common currency for conducting transactions among themselves, thus avoiding the adverse impact of the dollar on their economies, trade, and finances.
BRICS and Its Expanding Membership
BRICS, founded in 2006 by Brazil, Russia, India, and China, with South Africa joining in 2010, has seen its membership expand. This year, Iran, Egypt, Ethiopia, and the United Arab Emirates also joined the group. Saudi Arabia has been invited to join, but is not currently a member. The nine-member bloc is said to account for between 40 and 45 percent of the world's population and roughly one third of the global economy.
De-Dollarization as a Protection Mechanism
Some BRICS members view de-dollarization as a means of protecting themselves from U.S.-led sanctions, which have discomfited Russia for the past 10 years. A joint declaration issued in Kazan decried the disruptive effect of unlawful unilateral coercive measures, including illegal sanctions, on the world economy and international trade.
Bypassing SWIFT
The concept of de-dollarization also involves the creation of alternative methods of cross-border payment to achieve independence from Western systems. Currently, the primary system for international payments is the Belgium-based SWIFT (Society for Worldwide Interbank Financial Telecommunication), which was set up in 1973. BRICS states hope to create an alternative system, which would theoretically insulate its members from the threat of U.S.-led sanctions.
Bottom Line
While the idea of de-dollarization may seem like a distant possibility, the discussions and plans at the BRICS summit indicate a desire for an alternative to the current global financial system. However, the feasibility and effectiveness of such a system remain to be seen. The concept brings up interesting questions about the future of global finance and the role of the U.S. dollar. What are your thoughts on this matter? Feel free to share this article with your friends and start a conversation. Don't forget to sign up for the Daily Briefing, available every day at 6pm.
