by Tahir Mustafa (News & Analysis, Crescent International Vol. 53, No. 3, Shawwal, 1444)
The scramble to abandon the US dollar has picked up speed. That countries like Islamic Iran, Russia, China and Venezuela would abandon it because they are the victims of vicious US sanctions is understandable. The list of countries planning to abandon the greenback, however, is growing.
Let us first look at the countries that do not use the dollar in their trade transactions. Russia, China, Belarus, Iran, Turkey, the Central Asian Republics are all either trading in each other’s currencies or bypassing the dollar. The US itself is to blame for this emerging reality by imposing illegal sanctions and weaponizing the dollar.
Countries under pressure will seek ways to bypass such threats to their economic well-being. Russia and Iran signed an agreement last January to link their banks and are now trading in each other’s currencies. Russia and China are trading in the yuan, the Chinese currency. Saudi Arabia has also started accepting payments for oil in yuan as well as other currencies. If the Saudis were to abandon the US dollar altogether, that would spell the death-knell of the greenback. Recently, China and Brazil signed an agreement to trade in each other’s currencies.
This has now been followed by BRICS—the group comprising Brazil, Russia, India, China and South Africa—announcing that they plan to launch a new currency. This will be backed by gold as well as other commodities such as rare-earth metals.
BRICS is on the verge of major expansion. At least 19 countries have shown interest in joining it. South Africa’s BRICS ambassador, Anil Sooklal told Bloomberg news that a long list of countries is now looking to join in. He said the list includes 13 countries that have formally asked to join and an additional six that have informally requested to be part of the alliance.
Countries that are publicly known to have asked to join BRICS include Saudi Arabia, Iran, Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain, Indonesia, two unnamed countries from East Africa and one from West Africa. The new countries’ request will be discussed at the forthcoming BRICS summit in August in Durban, South Africa.
Formed in 2006 by four countries—Brazil, Russia, India and China—South Africa joined it in 2010. The five member countries have already surpassed the G7 countries in what they contribute to the global economy. The four original founders are expected to add almost 40 percent of the world’s growth through 2028.
Imagine with such heavy weights as Saudi Arabia, the UAE, Iran, Algeria, Indonesia as well as mineral-rich counties of West and East Africa joining the group, and it will become an economic power house.
According to the Russian news agency Sputnik, BRICS is in the early stages of developing a new global currency that would circumvent the US dollar. Quoting Russian State Duma Deputy Chairman Alexander Babakov, Sputnik reported at the end of March 2023 that the new currency will likely be backed by other assets including precious metals like gold.
At about the same time, finance ministers and central bank governors from the Association of Southeast Asian Nations (ASEAN) met in Indonesia to discuss ways to ditch the dollar and euro in their financial transactions and move to settlements in local currencies. ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Collectively, their GDP is $3.9 trillion, according the International Monetary Fund.
They not only discussed moving away from the US dollar but also stressed that they must find ways to reduce dependence on the British pound as well. The Japanese Yen will also be abandoned in transactions since Japan is seen as being under the thumb of Washington.
ASEAN countries discussed ways to use the Local Currency Transaction (LCT) system. This is an extension of a previous settlement system that was implemented among ASEAN member states and allows trade in local currencies. A similar agreement was reached between Indonesia, Malaysia, Singapore, the Philippines, and Thailand last November.
At the ASEAN summit, the Indonesian President Joko Widodo said his country needed to shield itself from geopolitical disruptions, citing the sanctions targeting Russia’s financial sector over the conflict in Ukraine. He called on regional administrations to start using credit cards issued by local banks and gradually stop using foreign payment systems. Moving away from western payment systems is necessary to protect transactions from “possible geopolitical repercussions,” Widodo said, adding, “Be very careful. We must remember the sanctions imposed by the US on Russia. Visa and Mastercard could be a problem.”
By weaponizing the dollar and using sanctions as a blunt instrument, the US has shot itself in the foot. The world cannot wait to rid itself of America’s bullying tactics. It is clear that the days of US hegemony are over. The last nail will be driven when dollar becomes completely irrelevant in global trade transactions.