De-dollarisation: a New Era of Collaboration or Conflict?
Foreign ministers of the BRICS countries have recently met to discuss expansion and ways to challenge US dominance in the economy. The bloc has accumulated the strength and support to potentially shift the balance of power and create a new age of communication, compromise, and collaboration.
BRICS’ foremost achievements have been in the area of financial cooperation, as evidenced by the establishment of the New Development Bank (NDB), the Contingent Reserve Arrangement (CRA), and various other financial coordination mechanisms. BRICS was solely conceived for the governance and successful emergence of the Global South and to encourage the ability of these nations to be able to cater to their own needs. Despite being a quarter of the world’s economic output, these countries still need to tackle the hierarchical barriers created by disparities in economic performance which are all strongly linked to a history of colonialism and dollar imperialism. A wider form of de-dollarisation is occurring around the world and refers to countries reducing reliance on the U.S. dollar as a reserve currency, medium of exchange or as a unit of account. The fact is that the US’s weaponization of its currency makes countries using the dollar vulnerable to Washington’s economic warfare which causes massive collateral damage. The world as we know it runs on its financial system and the potential abandonment of the dollar in the foreign exchange market could change the course of global economics. Its implications begin with the economy, but the influences are far reaching in terms of political reform, healthcare, and infrastructure to name a few.
Economic Implications
Perhaps one of the most influential effects lies in the reduced effect of US sanctions. By reducing their reliance on the US dollar, BRICS countries may be less vulnerable to unilateral US sanctions that rely on the US financial system and dollar transactions for enforcement. If other nations join this ‘alternate approach’ to global economies, then it could be revolutionary for many conflict-stricken nations. A clear example when this would be beneficial would have been in the case of Syria which, torn apart by war, also struggled to access humanitarian aid during the devastating earthquake. Whilst the US did lift sanctions for 180 days, the reaction of the government and United Nations were still too slow and there were still precarious repercussions Syria faced because of being drowned in bureaucracy. As James Watt, a former Ambassador has indicated, even if sanctions are lifted, people and banks are still afraid to conduct bilateral transactions with sanctioned countries. The establishment of BRICS allows for a new channel of communication which can be imperative to conflict zones. As their currencies gain prominence, there may be increased demand for local currency-denominated financial instruments, such as bonds, equities, and derivatives. This can foster the growth of domestic capital markets and attract foreign investment.
The notion of economic trade gets altered with a transition away from the dollar. The primary implication lies in the possibility of expansion of multilateral trade between the BRICS as well as other nations in the global south. By conducting trade in their own currencies, they can avoid the transaction costs associated with converting their currencies into US dollars leading to increased trade volumes and improved efficiency. China has largely been pushing for the transition because it is aligned to their economic interests as the second largest economy and as the number one trader for 61 countries compared to 30 by the US. The new economic block allows for the facilitation of trade and investment for each nation in their respective currencies, promotes the use of local currencies in settlement arrangements, and establishes regional financial institutions or mechanisms to support intra-BRICS transactions. This can be highly valuable in creating a new age of collaboration, increasing the economic synergy in the area which subsequently bleeds into other aspects of international relations.
However, it is important to note that the transition of trade to one of the currencies of the member states could also lead to increased volatility because of the exposure to exchange rate fluctuations. Additionally, without a unifying path in terms of the exchange rate, there can be increased discrepancies in the terms of trade, opening the financial market to higher risks of fraud and credit risks.
Geopolitical Implications
The economic implication of the de-dollarization of the global financial market is evident with a plethora of evidence, however, the semantics that need to be analysed lies in the soft power of this transition that has larger implications in the way the West is perceived and the way society as we know it is organised. The political implications are also strewn with connections to a wider movement of decolonising the world as we know it today. BRICS becomes a symbol of change, and the change is multifold, with new initiatives that allows the Global South to define their own trajectory.
New movement in global domination, de-westernization of economics and global dynamics. For conflicts arising from the South, the reason why there might be such inefficacy in implementing solutions is because perhaps they were not designed for them in the first place. This is evident in history when the US tried to implement democracy - which is not to say that freedom and equity should not exist - it is just to address that there are many political, religious and cultural nuances that must be taken into account and ensure that solutions are drawn up in an inclusive manner.
A new age of cooperation is seen specifically between countries that are conventionally seen as rivals such as the unlikely union of the most populous nations of India and China. They are two nations with frenzied confrontations at the border as both countries competing for economic dominance in the developing world have been able to compromise and establish a dialogue because of a new cause that has the power to unite them. Furthermore, the global south is experiencing a wave of determinacy to participate in the global economy with their own autonomy and we have already seen Malaysia and India establishing trade in rupees. Malaysia has been brought up in ASEAN for the setting up of the ‘Asian Monetary Fund.’
A political pipe dream?
The image of an organisation that is powerful enough to be actionable and effective sounds like an idyllic proposition, but reality cannot be quite so unchallenged. The issue with supporting the BRICS movement would be to support a nation facing charges of committing war crimes. There are tensions even within the BRICS nations and adds a further layer of complexity because the next summit projected to be held in Cape Town in August, South Africa is obligated to adhere to the International Criminal Court’s arrest warrant and seize custody of Vladimir Putin. Additionally, the Chinese government has a concerning human rights records due to the absence of effective labour protection laws and the consistent persecution of Uighur Muslims. The BRICS group’s potential to challenge or threaten the US-led world order is seriously undermined by the internal make-up of the group, its political and ideological heterogeneity, its incapacity to develop a collective world order vision sailable to the wider international community and the lack of strong convergence in foreign policy goals and preferences.
However, it could also be considered that it is hypocritical to not hold the West and specifically the US accountable for their involvement in various conflict zones across the globe and specifically in Latin America and the Middle East. The political unity that BRICS can facilitate a role of these nations becoming neutral compatriots that can take on a role of being a mediator and provide a new platform for negotiations that is away from the hegemonic nature of the West. In conclusion, BRICS and the transition away from the dollar definitely lead to the establishment of a new dynamic global economy with a larger scope for growth and participation of the global south. Establishing a new headquarters with political reach that is supported by economic means can have transformative effects in the perception and performance of the Global South with increased collaboration, compromise and communication that can succour conflict resolution.
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