For eight decades, the supremacy of the United States dollar as the world’s premier reserve currency has remained unchallenged. However, a consortium of developing nations, weary of the West’s dominant influence in global finance and governance, is actively seeking to diminish its prominence.
Russian President Vladimir Putin, addressing the BRICS summit virtually, emphasized that the process of de-dollarisation is both “irreversible” and “gaining pace.” The BRICS summit, involving leaders from Brazil, India, China, and South Africa, has provided a platform for discussions on this transformative shift. The dollar currently underpins more than 80% of international trade, but these nations are aiming to diversify their currency usage.
Calls for a departure from dollar hegemony are not novel, but recent geopolitical dynamics and escalating tensions between Western powers and Russia and China have escalated the urgency. The ramifications of Western sanctions against Russia, including freezing a significant portion of its foreign currency reserves, have magnified the necessity for alternative financial mechanisms. Furthermore, the US’s restriction on semiconductor technology exports to China has added momentum to the drive for diversification.
Shirley Ze Yu, a senior visiting fellow at the London School of Economics, explains that the US’s manipulation of the dollar through sanctions and interest rate hikes has prompted many developing nations to consider alternatives. The desire to escape the adverse impacts of a strong dollar on debt and exchange rates has become a compelling economic factor.
While the motivation for seeking alternatives is grounded in practical concerns, rather than solely ideological ones, the increasing reliance on an instrument wielded for political purposes has spurred these nations to explore new currency options. The Global South’s pursuit of an alternative currency is driven by a pragmatic need to safeguard against potential risks associated with depending solely on one currency for global transactions.