The beginning of the end of US dollar hegemony

If a common reserve currency, be it the Chinese yuan or Indian rupee will be announced at the forthcoming BRICS summit in South Africa in August 2023, it will undoubtedly remove the US dollar from the throne of the international economy.

Washington Post editorial board member and columnist Anne Applebaum noted in an article published on May 11, 2018, that America’s hegemony depended on dollar diplomacy, military power, creating and expanding NATO, and US investment interests in allied countries. The United States has built an “indispensable” position, the world’s “sole superpower”, to speak loudly on issues of trade, war and peace across the world with the strength of its wealth and military troops.

But America’s ruling class may not have imagined in its wildest dreams that an Asian country would challenge its carefully built “hegemony on the cheap” by declaring that China has stood “tall and firm in the east” tearing down the “bamboo curtain” erected around her by the West. Once ridiculed as the “Sick Man of East Asia”, the country of the Eastern hemisphere has become the world’s second-largest economy and announced that “as a responsible major country, China has something to say” on global affairs as in the words of Chinese President Xi Jinping, “China’s international influence, appeal, and power to shape have risen markedly”.

American power-hungry presidents, who have always wanted to keep China asleep, now see with amazement that the “sleeping giant” (as Napoleon once said) has gradually awakened and emerged as a more powerful global power in building a “Human Community with a Shared Future” without conflict or confrontation. 

The United States, which has been the dominant force in international financial transactions through the influence of the US dollar as a global currency arising out of the Bretton Woods system since the end of World War II, now sees that its currency is losing its reserve status at a much faster pace than expected. The US administration has always seen its dollar as a weapon to suppress other countries. Refaat Badawi, a political analyst and advisor to former Lebanese Prime Minister Salim Al-Hoss wrote an article for China’s Xinhua News Agency on April 18, 2023, where he cited an interview of economist Jeffrey D. Sachs with Sky News. The American economist predicted a dramatic end to the US dollar soon, adding that America will lose its primary weapon of pressure, which it has always used to blackmail countries of the world.

It’s hard for America’s successive presidents to digest this truth, but it’s evident that the Chinese yuan is emerging as the best alternative for countries that can’t use the dollar due to Western sanctions or other reasons.

Many economists and financial analysts believe that sooner or later, the US dollar will end at the hands of China or India. Citing well-known currency analyst Stephen Jen, Bloomberg reported that the dollar’s share of global reserves fell 10 times faster last year than in the past two decades. London-based asset management firm Eurizon strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.

The US and its Western allies’ sanctions against Russia, since its military operation in Ukraine in February last year, have accelerated the global shift away from the use of the US dollar. The utter mess of America’s banking system has recently come to light since the country’s 16th largest bank, Silicon Valley Bank went bankrupt.

A few days ago, Brazilian President Luiz Inacio Lula da Silva sounded the death knell of the dollar when he visited China. On April 13 in Shanghai at the inauguration ceremony of former Brazilian President Dilma Rousseff as president of the New Development Bank (NDB), he strongly criticized the monstrous role of the US dollar in the world economy and accused the US International Monetary Fund (IMF) of ‘asphyxiating’ the economy of certain countries. “Why should every country have to be tied to the dollar for trade? Who decided the dollar would be the (world’s) currency?” Lula asked.

In 2015, the five-nation BRICS grouping consisting of Brazil, Russia, India, China, and South Africa set up the NDB in Shanghai as an alternative to the World Bank and the IMF with $50 billion in seed money. At Rousseff’s inauguration ceremony, Lula called on BRICS and other developing countries to shed dollar dependence by stating that the NDB has the unique ability to finance projects using local currency. 

On March 29, 2023 in Beijing, China and Brazil-the biggest economy in Latin America, inked a deal to trade in their own currencies instead of the US dollar. The agreement between China and Brazil is undoubtedly a big jab at the US dollar’s dominance as it would facilitate greater bilateral trade and investment between two major emerging economies. Beijing has similar currency deals with Russia, Pakistan and several other countries that have already reduced the importance and value of the US dollar.

It should be recalled here that South African Foreign Minister Naledi Pandor said in a speech earlier this year that the BRICS club seeks to introduce a fairer payment system in the world that would oppose the single dominance of the dollar. “We have always been concerned at the fact that there is a dominance of the dollar and that we do need to look at an alternative,” Pandor said. The more important matter is that the four BRICS members – India, Brazil, South Africa and China did not take part in U.S.-led sanctions against one of their allies- Russia.

During President Xi’s visit to Russia last March, President Vladimir Putin became more vocal about the global use of China’s currency for trade and for “de-dollarization.” In the face of Washington’s hegemony of the IMF as well as the Biden administration’s “weaponization” of the dollar, two-thirds of trade between China and Russia is denominated in yuan and ruble. 

On the other hand, in an interview for French business daily Les Echo and newsmagazine Politico published on April 9, French President Emmanuel Macron, the leader of a country that’s a member of NATO in the 27-nation European Union (EU), has criticized the United States’ weaponization of the dollar by stating that Europe should oppose the “extraterritoriality of the U.S. dollar.”

More and more countries are already using their own currencies as their medium of international trade. Countries in the Middle East, the 10-member ASEAN and the nine-member Shanghai Cooperation Organization (SCO) are increasingly settling trade and payments with each other’s currencies. On April 21, 2023, Bangladesh settled cross-border trade with India in Indian rupees (INR) in order to dump U.S. currency. The Reserve Bank of India gave the green signal to open ‘Special Vostro Rupee Accounts’ (SVRAs) in a total of 18 countries around the world in March this year. 

On September 15, 2022, Bangladesh’s central bank permitted its financial institutions to settle trade deals with China in the yuan as an alternative to the US dollar in international transactions. On the other hand, ASEAN countries also took the decision to reduce dependence on US dollar at the 9th ASEAN Finance Ministers and Central Bank Governors Meeting in Bali, Indonesia on March 30-31, 2023. Latin America’s two largest economies, Brazil and Argentina, have begun discussions on introducing the same currency for trade in order to reduce dependence on the US dollar.

The combined GDP of the BRICS bloc is slightly higher than the US. The five major economies account for 41 percent of the world’s population, 31.5% of global GDP based on purchasing power parity, and 16 percent of global trade flows. If the BRICS group and the SCO start exchanging national currencies in mutual settlementس, they will reduce dependency on the US dollar for sure. 

However, the dollar still constitutes 88 percent of all international transactions. It is not easy to dethrone the dollar from the global economy. Hopefully, the BRICS countries have agreed to introduce a new international currency to stop the monopoly of the US dollar. If a common reserve currency, be it the Chinese yuan or Indian rupee (China and India respectively stand in first and second positions of BRICS economy) will be announced at the forthcoming BRICS summit in South Africa in August 2023, it will undoubtedly remove the US dollar from the throne of the international economy. The time to listen to the dollar’s swan song is imminent.