Emerging Nations Poised to Challenge Key Pillar of Dollar Dominance / Rahul Kumar

The BRICS bloc, comprising Brazil, Russia, India, China, and South Africa, along with new members Iran, Egypt, Ethiopia, and the United Arab Emirates, has long harbored aspirations of reducing their reliance on the US dollar in global transactions. This sentiment has gained momentum in recent times, with discussions revolving around alternatives to the dollar-dominated financial system.

Last year, Brazilian President Luiz Inácio Lula da Silva ignited conversations about a potential BRICS common currency, although the feasibility of such an initiative remains uncertain. However, the bloc has been actively advocating for increased trade and lending in local currencies as a means of diversifying away from the dollar.

As the BRICS nations gear up to convene for their summit in Kazan, Russia, from October 22 to October 24, there is anticipation that discussions on de-dollarization will gain traction. Christopher Granville, the managing director of global political research at GlobalData.TS Lombard, believes that escalating tensions between the US and China, coupled with Washington’s imposition of secondary sanctions, could fuel momentum for alternative currency arrangements.

One potential solution lies in central bank digital currencies (CBDCs), which offer a decentralized platform for direct peer-to-peer settlements. Although the concept is still in its infancy, the Bank of International Settlements has been actively exploring the possibility of a CBDC platform involving participating countries’ digital currencies.

China, with its advanced digital yuan, stands to benefit significantly from such a system, especially amid its ongoing trade disputes with the US. However, the suspension of Russia’s central bank membership in the BIS complicates matters, raising questions about the inclusion of Russian digital currency in any CBDC platform.

Despite these challenges, Granville believes that CBDCs have the potential to undermine the US dollar’s dominance in international payments. By facilitating transactions outside the traditional SWIFT messaging network, CBDCs could gradually erode the dollar’s share in global transactions, although the impact on trade finance and foreign exchange reserves may be more limited.

Nevertheless, the implementation of CBDCs presents its own set of challenges, including the need to ensure financial stability and avoid disruptions to existing banking systems. Despite these obstacles, the BRICS bloc and other countries outside the US alliance system may view CBDCs as a step towards greater financial autonomy and reduced dependence on the dollar. As discussions unfold at the upcoming BRICS summit, the trajectory of de-dollarization efforts will undoubtedly be closely watched by global markets and policymakers alike.

Origin: https://theubj.com/business/emerging-nations-poised-to-challenge-key-pillar-of-dollar-dominance/