Will the ‘BRICS currency’ end the US dollar dominance?

The concept of the US dollar dominance has been in the spotlight in the past few months with experts in both sides sharing their ideas. Some experts believe that the end of the greenback in global trade and as a reserve currency is nearing. Others, on the other hand, opine that the dollar will never be dethroned. 

The case against the US dollar has grown

The case against the US dollar has grown in the past few years as the government has used it as a weapon. Washington has sanctioned countries like Russia, Iran, Cuba, North Korea, and Venezuela. 

Most importantly, the recently passed REPO Act allows the government to seize Russian sovereign assets and move them to Ukraine. The impact of this is that many people no longer see the US dollar as a safe haven if the government can seize assets stored in safety.

Recent data shows that many big holders of US dollars have started to scale down their holdings. China has slashed its holdings of US dollar by over 30% and the trend will likely continue. This trend is happening since China believes that the US will sanction its holdings if it invades Ukraine. Other central banks have also reduced their holdings of US assets.

At the same time, many banks are acquiring other assets, especially gold. China, Saudi Arabia, Turkey, and Russia have amassed some of the biggest gold holdings in the world. This is an appreciation that gold is one of the best currencies in the world.

The other concern for the US dollar is that the government has become the most indebted globally. Recent data shows that the US government holds over $34.6 trillion in total debt, a figure that has continued rising. 

Most currencies that have collapsed in the past happened because of increased borrowing by the governments. 

Will the BRICS currency dethrone the dollar

The recent talk has been that a new BRICS currency will ultimately dethrone the US dollar. Besides, BRICS is made up of some of the biggest and fastest-growing emerging market currencies in the world like India and China. And more countries are vying to become members of the new bloc.

And last week, Saudi Arabia ended its petrodollar pact after 50 years. The country now wants countries to buy its oil using other currencies. Still, I suspect that most of them will prefer to use the greenback.

Watch here: https://www.youtube.com/embed/ujEKs94uRTE?feature=oembed

The other big story is that BRICS governments are working on a technology solution outside of the SWIFT network. This is a big deal since SWIFT is the most popularly used network for global transactions, handling trillions of dollars every month. 

Still, the question is whether all these initiatives will help to dethrone the US dollar. To be clear: the talk of the ending of the dollar dominance is not new. Many people predicted its end in the 1970s after President Richard Nixon ended the gold standard. 

Other economists believed that the launch of the euro would accelerate the dollar’s demise. The same happened during the Global Financial Crisis (GFC) in 2008/9. All these predictions have not happened and the dollar’s role in trade and as a reserve currency has continued.

The biggest challenge for replacing the US dollar is that there is no viable alternative and creating a single currency for all BRICS members would be a daunting task. For one, while these members are united in their distrust for the US, they have their own conflicts. A good example of this is China and India and Saudi Arabia and Iran.

The alternative, where these countries decide to use their local currencies, is also not a viable idea. A good example is what happened when India bought vast oil and natural gas resources from Russia using its rupee.

Russia found itself with vast rupee deposits that it couldn’t use for trade. Today, the volume of India’s oil purchases from Russia has dropped. 

Therefore, I believe that it will not be possible to dethrone the US dollar in the near term because of its dominance as Foreign Policy noted in a recent article:

“The dollar remains a financial safe haven and the most reliable medium of exchange and store of value, not just for the United States but globally.”

Another alternative for BRICS is a situation where members turn their attention to safer neutral currencies. As I wrote in 2023, the Swiss franc would be a viable alternative. It is a stable country with a good record of neutrality on most issues.

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