The world’s reserve currency is facing a challenge from Global South countries who want options beyond the greenback.
Johannesburg, South Africa – For 80 years, the United States dollar has dominated all other currencies. But a grouping of developing countries tired of the West’s looming presence over global governance and finance is determined to take it down a peg.
The process of de-dollarisation is “irreversible” and “gaining pace”, Russian President Vladimir Putin said on Tuesday in a virtual address to the BRICS summit in Johannesburg, where the leaders of Brazil, India, China and South Africa are gathered for three days.
The dollar has been the world’s principal reserve currency since the end of World War II, and is estimated to be used in more than 80 percent of international trade.
Earlier this year, Brazilian President Luiz Inacio Lula da Silva questioned why all countries had to base their trade on the dollar, and prior to that, a top Russian official suggested that the BRICS grouping was working on creating its own currency.
Calls for a global shift away from dollar dominance are not new, nor are they unique to BRICS, but experts say recent geopolitical shifts and growing tensions between the West and Russia and China have brought them to the fore.
In early 2022, Western sanctions over Russia’s invasion of Ukraine froze nearly half of Russia’s foreign currency reserves and removed major Russian banks from SWIFT, a messaging network banks use to facilitate international payments.
Later in the 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 other developing countries to seek alternative currencies for trade, investment, and reserves, as well as developing alternative multilateral clearance systems outside of SWIFT,” Shirley Ze Yu, a senior visiting fellow at the London School of Economics, told Al Jazeera.
Yu added that as the US Federal Reserve has raised interest rates in recent years, “developing countries have widely suffered from paying higher interests on their dollar debt and battling the exchange rate impact from a strong dollar. The interest to borrow in local currencies or other currencies is strongly motivated by economic considerations”.
The impetus for Global South countries trying to find an alternative is more a “practical consideration” than a moral one, said Gustavo de Carvalho, a policy analyst on Russia-Africa ties at the South African Institute of International Affairs, as they view the recent sanctions and ask: “What are the risks that we are facing by engaging with one currency globally that may be utilized for political purposes?”
Speaking at a workshop on BRICS and the global order in Johannesburg last week, de Carvalho laid out some “very loose” options BRICS may consider, including using a basket of currencies from BRICS countries, using gold as a peg for a new potential currency, or even using cryptocurrencies.
“Each of them are quite separate and probably much more mid-to-long term than they are short term,” he said.
A BRICS currency?
Considering the possible currency options, Danny Bradlow, a professor with the Centre for Advancement of Scholarship at the University of Pretoria, said he doubts many people would want to go back to the gold standard, and cryptocurrencies are an unlikely option because they are “even more risky”.