The BRICS summit dedollarization and the global realignment
The BRICS summit, de-dollarization, and the global realignment
Last month’s BRICS summit saw representatives from thirty-six countries discuss the formation of a new world order without dollar dominance—and, by extension, one in which America and its allies no longer play a preeminent role. As BRICS member states alleviate bilateral tensions and Global South countries turn away from American aid, Washington urgently needs to adjust to today’s shifting geopolitical landscape.
The summit’s theme was unlocking the potential of countries that felt spurned by the West in the post-Cold War era. “We are not building up a bloc that will be targeted against somebody’s interests,” Putin said. He envisions BRICS as a safe haven for countries wronged by Washington’s punitive use of the dollar. However, Russia alone cannot create an alternative financial ecosystem. This is why outreach to the Global South is indispensable to its strategy.
In September, during the Russian Energy Week International Forum, Putin emphasized that BRICS countries will lead the world’s future economic growth and that Moscow will support their industries by exporting fuel and energy products. A few days before the summit, Putin noted that BRICS, thanks to its new members, has surpassed the G7’s contribution to global GDP. Xi Jinping closed the event by repeating that the rise of the Global South heralds a “great transformation across the world.”
If these countries, as Putin contends, are seeking refuge from a U.S.-led financial system, what is the best way to attract them into an alternative geopolitical sphere? Russia and China see the solution in cross-border payment systems that rely on local currencies. The BRICS Cross-Border Payments Initiative (BCBPI) will act as the vehicle that establishes these channels so that member countries can conduct exchanges while circumventing any American involvement.
The feasibility of adopting a unified BRICS currency remains remote. For years, the national interests and domestic fiscal policies of India, Russia, China, Brazil, and South Africa have impeded this objective. The organization’s recent expansion to include Iran, the United Arab Emirates, Egypt, and Ethiopia will lead to further divergence in the group’s financial priorities, suggesting that BRICS is not immediately interested in launching a unified fiat currency.
However, this does not mean that the pace of global de-dollarization will slow down. If anything, it has dramatically picked up speed since Russia invaded Ukraine. The Kremlin began transitioning to ruble and gold payments to alleviate the effects of heavy Western sanctions and expulsion from international payment systems like SWIFT. China has extended payment swap lines to countries, including Argentina, to trade directly in the Chinese yuan. China’s e-CNY digital currency also creates opportunities for edging the dollar out of competition.
What should concern Washington more than de-dollarization itself, though, is how the process is one element of a greater global realignment that diminishes U.S. influence. Not all BRICS member countries, taken individually, are hostile towards Washington. However, as a whole, BRICS is becoming a new platform to address international crises, reshape trade, and amplify projects that sidestep American input.
For instance, on the sidelines of the summit, India and China reached a deal to ease tensions at their border, getting them closer to eliminating a major roadblock to their rapprochement. The summit also allowed Indian Prime Minister Narendra Modi and Chinese leader Xi Jinping to host their first bilateral dialogue in five years. Modi also used the opportunity to meet with new Iranian President Masoud Pezeshkian for the first time. In 2023, China mediated the normalization of relations between Iran and Saudi Arabia—the former is now a BRICS member, and the latter is still making up its mind.
Beyond its role as a diplomatic forum, the organization has progressed in trade alignment. The BRICS Grain Exchange—an initiative initially proposed to Putin by the Russian Union of Grain Exporters and discussed by BRICS Agriculture Ministers in June—could have tremendous consequences for global markets. It was formed to facilitate BRICS countries’ access to agricultural supply chains and create a market upheld by the organization’s own standards, resistant to outside speculation. The initiative aims to institute regulatory policies concerning grain prices and domestic reserves. Still, it will first have to deal with the fact that Brazil, India, China, and South Africa already manage their own grain exchanges.
Furthermore, BRICS will attach itself to projects offering an alternative to Western developmental finance. Shortly before the 2024 summit, Russian Finance Minister Anton Siluanov accused the IMF and World Bank of “not performing their roles,” arguing that new institutions should be formed “within the framework of BRICS.”
The organization has previously taken steps to inaugurate new multilateral lending institutions. In 2015, BRICS established the New Development Bank (NDB) to finance emerging markets, presently reaching $32.8 billion across ninety-six projects. Despite its shortcomings (that same $32.8 billion figure on the NDB website was previously quoted in April 2023), the NDB could nevertheless prove to be a viable alternative to the IMF and World Bank by offering aid with fewer conditions.
It would be a grave error for U.S. policymakers to assume that BRICS’ internal divisions are insurmountable obstacles. If BRICS succeeds in setting a standard for cross-border payment systems, continues to act as a platform for bilateral and multilateral talks, and creates alternatives to Western lending institutions, Washington risks losing a significant portion of its global influence.
The United States should ensure that it remains the preferred partner for international mediation and take steps to ensure that the conditionality of IMF loans does not push developing countries towards BRICS. American engagement with Global South countries must also become a priority. The United States Agency for Global Media should relay its progress in making reforms that benefit these countries to reclaim the information space that Russia and China are increasingly dominating. Finally, the U.S. Treasury Department should recognize that, without careful use of sanction powers, developing countries may be compelled to align themselves with the de-dollarization movement.
Axel de Vernou is a senior at Yale University majoring in Global Affairs and History with a Certificate of Advanced Language Study in Russian.
Farrell Gregory is a policy fellow at the Foundation for American Innovation and a research assistant at the Yorktown Institute.
source: tehrantimes.com