Rise of BRICS & De-dollarization

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Rise of BRICS and De-dollarization: A Shift in Global Power

Introduction

The global economic and political landscape is undergoing a significant transformation with the rise of the BRICS alliance—comprising Brazil, Russia, India, China, and South Africa, and now expanding to include nations like Egypt, Iran, Ethiopia, and the United Arab Emirates. What started as an economic concept has evolved into a strategic bloc aiming to challenge Western dominance, especially the US dollar’s supremacy in global trade and finance. A key agenda gaining momentum is “de-dollarization”—the shift away from using the US dollar as the primary currency in international trade, reserves, and financial transactions.
This write-up explores the rise of BRICS as a global powerhouse and its implications for the US-led financial order.

Origins and Evolution of BRICS

The term "BRIC" was coined by Goldman Sachs economist Jim O’Neill in 2001, describing emerging economies poised for high growth. Initially a loose economic grouping, BRICS held its first summit in 2009. South Africa joined in 2010, adding the “S” to BRICS. Since then, the bloc has evolved into a political and economic force, holding regular summits and establishing institutions like the New Development Bank (NDB) and Contingent Reserve Arrangement (CRA).
In 2023, BRICS announced a major expansion, inviting Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. This expanded version—often referred to as “BRICS+”—represents more than 45% of the world’s population, over 30% of global GDP (PPP), and a significant share of global energy production.

The Push for De-dollarization

The dominance of the US dollar in global trade, reserves, and finance has long been a symbol of American economic power. However, this dominance has come under scrutiny, especially in the wake of:

• US sanctions on countries like Russia and Iran, which weaponized the dollar.
• Rising interest rates and inflation in the West.
• Global south’s desire for a more multipolar economic system.

De-dollarization involves reducing reliance on the dollar by:

1. Trading in local currencies.
2. Creating alternative payment systems.
3. Increasing gold reserves.
4. Establishing a BRICS currency or using digital currencies.

Steps Toward De-dollarization

1. Bilateral Trade in Local Currencies

Several BRICS nations have signed agreements to trade in their own currencies:

• India and Russia have settled oil trades in rupees and rubles.
• China and Brazil agreed to trade in yuan and real, bypassing the dollar.
• Saudi Arabia and China have discussed petro-yuan contracts.

2. New Development Bank (NDB) Initiatives

The NDB, headquartered in Shanghai, promotes infrastructure and sustainable development in BRICS and other developing countries. It provides loans denominated in local currencies rather than dollars, reducing exposure to exchange rate fluctuations and US influence.

3. Reserve Pooling and Currency Swaps

Through the Contingent Reserve Arrangement (CRA), BRICS countries can access liquidity support in case of financial crises, reducing reliance on the IMF, often viewed as biased toward the West.
China has also expanded currency swap agreements with countries like Pakistan, Argentina, and Russia.

4. Digital Currencies and Payment Systems

With the rise of CBDCs (Central Bank Digital Currencies), BRICS nations are exploring blockchain-based solutions:

• China’s digital yuan (e-CNY) is already in pilot use.
• Russia is developing a digital ruble.
• India is launching the e-rupee.

In parallel, there are efforts to create a BRICS cross-border payment system that could rival SWIFT—the Western-dominated global payment network.

Geopolitical Drivers of De-dollarization

1. Western Sanctions and Isolation

The sanctions imposed on Russia after its invasion of Ukraine in 2022—especially freezing its dollar reserves—sent a strong signal to other nations: the dollar can be used as a weapon. This prompted countries like China, Iran, and Saudi Arabia to reduce their dollar dependency.

2. Strategic Rivalry with the West

China, Russia, and other BRICS members view de-dollarization as part of a larger geopolitical competition. They seek a multipolar world order, where power is not concentrated in Western institutions like the IMF, World Bank, and G7.

3. Demand for Economic Sovereignty

Many nations in the Global South, especially in Africa, Asia, and Latin America, feel the current global financial system is biased. High borrowing costs, dollar volatility, and external debt burdens have fueled calls for reform and alternatives.

Challenges to De-dollarization

Despite the momentum, de-dollarization faces significant hurdles:

1. Trust and Stability

The US dollar remains dominant due to its liquidity, trustworthiness, and stability. Many BRICS currencies suffer from volatility, limited convertibility, or low global demand.

2. Infrastructure and Coordination

Creating alternative payment systems or a BRICS currency requires technological coordination, regulatory harmonization, and political consensus, which are difficult in a diverse bloc with differing interests.

3. US Global Influence

Many nations still trade heavily with the US, hold dollar reserves, and depend on Western financial systems. Exiting the dollar system would mean significant economic and diplomatic risks.

The Role of China

China plays a leading role in the BRICS de-dollarization effort. As the world’s second-largest economy and largest trading nation, China is pushing for the internationalization of the yuan. Through Belt and Road Initiative (BRI) projects, China lends in yuan, sets up yuan-clearing banks, and signs swap agreements. The digital yuan could further boost its influence in cross-border payments.
However, China's ambition is also met with suspicion, especially by India, which seeks a multipolar BRICS, not a China-dominated one. This intra-BRICS dynamic adds complexity to the de-dollarization agenda.

Impact on the Global Financial System

If BRICS and its partners succeed in reducing dollar reliance, the impact could be profound:

• US dollar hegemony could weaken, affecting interest rates, inflation, and geopolitical leverage.
• Alternative reserve currencies and payment systems could rise.
• Western institutions like the IMF and World Bank may face growing competition and reform pressure.
• A multipolar currency system may emerge, featuring the yuan, euro, BRICS currency, and others.

Conclusion

The rise of BRICS and the push for de-dollarization signify a potential realignment of global economic power. While the US dollar remains dominant for now, the cracks in the system are visible. As BRICS+ expands and strengthens economic cooperation, the movement toward a multipolar financial world gains traction.
De-dollarization is not about replacing the dollar overnight. It is about offering alternatives, reshaping dependencies, and building resilience in the Global South. Whether BRICS can overcome internal divisions and external pressures remains to be seen. But one thing is certain: the age of unchallenged Western financial dominance is being questioned, and the world is watching closely.
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