THE BRICS 2024 summit in Kazán, Russia made history in pushing the de-dollarization agenda with a view to building a more inclusive multicurrency financial system. Led by China and its BRICS partners, this effort is to reduce reliance on the US dollar.
The Rise of Dollarization: For more than half a century, the US dollar has reigned as the world’s reserve currency as a result of the Bretton Woods Agreement and the US’s economic and military might. This dominance does give a benefit to the US, but economically strains other nations compelling them to look for alternatives.
China’s Economic Strategy and the Yuan’s Growth: Since 2013, China has been pushing to internationalize the Yuan, with more than 40 currency swap agreements with countries in Asia, Europe and Latin America. Japan, South Korea and Germany now trade in Yuan, bypassing the dollar. Its role in global transactions has been boosted by offshore Yuan centres in Hong Kong and London.
BRICS 2024: A United Push for De-Dollarization: BRICS reaffirmed at the summit its commitment to reshaping the financial landscape. BRICS Pay, a multicurrency payment platform to bypass the dollar, and the Kazán Declaration which put forward the idea of a gold backed BRICS currency to facilitate member trade, were also adopted by the bloc. Petro-Yuan: A Direct Challenge to the Petro-Dollar: Saudi Arabia’s announcement that it will consider selling oil in Yuan after a currency swap deal with China is a challenge to the petro-dollar system. China’s decision to negotiate energy deals in Yuan is just one more step on the road to the dollar’s decline as the world’s biggest oil importer is also the world’s biggest oil consumer.
Geopolitical Tensions Fuel De-Dollarization: Geopolitical rivalries between the US and China, especially, accelerate de-dollarization. Russia and Iran, both under US sanctions, are drawn to China’s alternatives, which offer economic independence and challenge the dollar as a political lever.
Technological Advancements Support a Multipolar System: China’s digital Yuan embodies the power of technology to de-dollarize, providing secure, real time cross border payments. Blockchain based systems are reducing reliance on traditional banking and the dollar, as China is now using the Yuan for about 53% of its cross border payments.
The Challenges of Dethroning the Dollar: Progress has been made, but there are obstacles. A multicurrency system requires global cooperation and the Yuan is not a currency that has widespread trust. Analysts expect a multipolar currency system, in which the dollar retains its importance but shares power with other currencies, such as the Yuan.
A New Financial Era on the Horizon: China’s de-dollarization efforts, from BRICS Pay to the petro-Yuan, are a sign of times to come in global finance. Dollar dominance still prevails, but diversified currencies are changing the way we look at the financial landscape. At the BRICS summit we can see the influence of the Yuan growing and the potential for a new financial era.
—The writer is MPhil scholar at National Defence University, Islamabad.
