June , 2024
Rise of BRICS and the West: The dethroning of the US Dollar
20:20 pm

Madhusudhanan S

The International Monetary Fund (IMF) has been warning about a growing rift in global trade along geopolitical lines. This trend could potentially lead to the collapse of world trade and a slowdown in global growth. But before delving further, it is essential for readers who may not follow international trade to understand BRICS. Here is a brief background:

Brief background of BRICS

The alliance of BRICS is built on a foundation of friendship, solidarity, and shared interests. BRICS represents over 42% of the global population, 30% of the world’s territory, 23% of global GDP, and 18% of global trade. After formalizing it as BRIC on June 16, 2009, the leaders held the first BRIC Summit in Yekaterinburg, Russia. In 2010, South Africa was invited to join, thus becoming BRICS.

Understanding how international trade relations are reshaping is crucial before examining how the US dollar’s dominance has impacted BRICS nations and why BRICS is leading the trend towards de-dollarization. This article concludes with an overview.

Reshaping of trade relations

On May 7, 2024, Gita Gopinath, the First Deputy Managing Director of the IMF, stated, “After years of shocks—including the COVID-19 pandemic and Russia’s invasion of Ukraine—countries are reevaluating their trading partners based on economic and national security concerns.”

The IMF observes that some countries are reconsidering their heavy dependence on the dollar for international transactions and reserve holdings. This shift indicates increasing polarization in trade relations, with nations moving away from globalization towards protectionism.

A World Bank study on global trade noted a slowdown, with only a marginal expansion in goods and services by 0.2% in 2023, marking the slowest pace in 50 years outside of global recessions. It further stated, “It would have declined outright but for the growth of trade in services.”

Global trade transactions have been reshaping in recent years. The share of the Chinese currency Yuan (also known as the renminbi - RMB) in foreign trade increased by around 50 percent in 2023, while the US dollar’s share declined from around 80 percent in 2010 to 50 percent in 2023, according to Gita Gopinath.

Long-standing discord between the West and the East is evident in the US’s trade war with China and sanctions on Russia. The current war in Ukraine and tensions in the Middle East are deepening these divisions.

Impact of US Dollar hegemony on  BRICS

The BRICS nations have long suffered from the hegemony of the US dollar. Brazil, for instance, has been exploited by US and UK capital through various profiteering methods throughout its history. The appreciation or depreciation of the US dollar has always had a significant impact on Brazil.

Numerous instances of US sanctions against the Russian government and companies exist, with the recent sanctions following the Ukraine war being notable examples. The US even threatened to confiscate wealthy Russian assets, though this did not go beyond a war of words.

In India, US capital has freely entered and exited the stock market, causing significant fluctuations and impacting Indian com-panies’ capital liquidity. China and the US have had a long-standing trade war, with the US accusing China of currency manipulation due to its major holdings of US dollar assets. Sanctions were once imposed on China for manipulating the RMB exchange rate to increase exports.

The US benefits from importing cheap manufactured goods from China, which helps lower its inflation. China, in turn, purchases US Treasury Bills with its earnings, providing cheap capital to

the US. Despite this, the US remains the major beneficiary.

The US has also imposed fines and sanctions on South Africa, accusing it of money laundering and violating economic sanctions. This hegemonic behavior prompted BRICS nations to stand up for themselves and seek a change in the economic order, forming a collective counterweight to the US and the West.

Reasons for BRICS leading the trend towards de-dollarization

According to Reuters, Russian President Vladimir Putin stated, “Today (i.e. 16-05-2024), 90% of all payments are already made in Roubles and Yuan.” This indicates BRICS’ efforts to de-dollarize the world economy. One primary reason for this move is to avoid the hegemony of trade sanctions and asset seizures by the West.

Another reason is the higher interest rates in the US, which have increased the cost of servicing debt and made trade finance more costly. The shortage of dollars has also prompted this move, with countries like Argentina, Ethiopia, and Egypt suffering from dollar shortages. This reflects an imbalance between the demand for and supply of dollars.

The dominance of the US dollar in trade and finance has led to increased inflation and currency devaluation in many emerging market economies. Devaluing domestic currencies raises the cost of importing US-dollar-denominated goods, further increasing inflation.


The UNCTAD investment report states that FDI flow to BRICS nations increased four-fold annually from $84 billion in 2001 to $355 billion in 2021. This demonstrates the inevitable rise of BRICS in major trade transactions.

However, the main question remains: if BRICS aims to dethrone the US dollar, what is the alternative? Many BRICS commentators believe that the Chinese Yuan (or Renminbi) could replace the US dollar due to its relative stability and liquidity. Although the Yuan’s use in international trade has increased, it is still limited because China has not fully liberalized its capital account, making it difficult to trade freely with the Yuan.

Some BRICS countries are trading directly with each other in their own currencies. For example, India and Nigeria recently agreed to conduct all trade between them in their national currencies. BRICS is also developing its own currency, which could expedite de-dollarization.

If BRICS economies can achieve monetary cooperation and overcome the hurdles posed by the US dollar, de-dollarization may not be far off. This could transform the global financial system in a way not seen in a century.

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