The Inevitable De-dollarization. Photo: Al Mayadeen.
By – July 15, 2023
The author points out that this view is no longer limited to countries of the global south. The participation of China, Russia, and the BRICS group as active protagonists in the process could guarantee that it is indeed possible to move forward in a process that will definitively fracture one of the fundamental pillars of US and Western hegemony.
Last week, we embarked on a journey along the de-dollarization process that was characterized as inevitable. Today we will continue the analysis, trying to reach some conclusions while considering that it is still unclear which currency will be the alternative to the US dollar as the main exchange currency. Several options are being considered.
One of the options will come from the decision taken by the BRICS (Brazil, Russia, India, China and South Africa) at their summit meeting to be held in South Africa in August.
The governor of the South African Reserve Bank, Lesetja Kganyago, said that any discussion aimed at establishing a common currency will inevitably lead to another debate around the creation and location of a central bank. The South African leader expressed uncertainty on the matter, saying that he did not know how one would talk about “a currency issued by a bloc of countries that are in different geographical locations, since currencies are national in nature.”
BRICS New Development Bank De-dollarizing, Adding Argentina, Saudi Arabia, Zimbabwe as Members
What is certain, however, is at the Summit member countries of the bloc will discuss (as a priority item on the agenda) the measures necessary to protect the group’s New Development Bank (NDB) from the hegemony of the US dollar. Brazil has proposed the establishment of mechanisms to protect financial transactions within the bloc to avoid the “abuse of the dollar,” according to the country’s Foreign Minister, Mauro Vieira.
Sergey Lavrov, Russia’s Foreign Minister, said that while de-dollarization has already begun, it is necessary to develop other initiatives to give shape to the process. In the case of Russia, he explained that it has been obliged to “respond firmly, on principle, and consistently to the war declared against us.”
Within this debate, the President of South Africa, Cyril Ramaphosa, supported the proposal of his Brazilian counterpart, Lula da Silva, to create “new currencies for trade.”
Continuing with the review we made in the previous article on concrete measures that have been taken to further the process of de-dollarization, it is important to highlight the statement made by the Russian Minister of Finance, Anton Siluanov, who said that more than 70 percent of trade agreements between Russia and China now use the ruble or the yuan. Similarly, oil trade between Russia and India in rupees has begun. An agreement was also signed between Russia and Bangladesh to finance the construction of the Rooppur nuclear power plant, with a currency other than the dollar. The first payment of $300 million will be in yuan, but Russia will try to change it to rubles.
Even in the West, the process to incubate has begun. China National Offshore Oil Corporation (CNOOC) and France’s Total signed their first LNG deal in yuan through the Shanghai Oil and Natural Gas Exchange.
In Latin America there have also been some positive signs for de-dollarization. For example, a few weeks ago the Brazilian bank Bocom BBM became the first Latin American bank to register as a direct participant in the Cross Border Interbank Payment System (CIPS), which is the Chinese alternative to the Western-led financial messaging system SWIFT. Furthermore, in recent days it was agreed that bilateral trade between Russia and Bolivia will now accept settlements in Bolivian pesos. This is essential at a time when the Russian company Rosatom will begin to play a decisive role in the development of Bolivia’s lithium deposits.
It is worth mentioning that at the July 4 Mercosur summit held in Puerto Iguazú, Argentina, Bolivia raised the need to reduce dependence on the dollar, diversify economic relations, and strengthen trade and financial ties between countries to encourage domestic investment and promote cooperation in monetary policy.
Bolivian President Luis Arce argued that “reducing dependence on the dollar, through greater integration and regional cooperation, implies changing the terms of trade that have so far only favored northern countries.” Arce proposed strengthening trade and financial ties between countries, including the strengthening of currencies at the regional level, encouraging domestic investment, and promoting cooperation in monetary and financial policy, in addition to seeking strategic alliances with others, such as China, which offer alternatives to the dollar in trade and investment.
The Bolivian president observed, “In the analysis of this world in transition we cannot ignore the emergence of a Eurasian and Asian bloc which, organized in the BRICS and other integration mechanisms, are projected as spaces for the construction of a new world economic order.”
Meanwhile, in Asia, the finance ministers and central bank governors of the Association of Southeast Asian Nations (ASEAN) also decided to reduce their dependence on the US dollar after their March 30-31 meeting in Indonesia. They agreed to “strengthen financial resilience […] through the use of local currencies to support cross-border trade and investment…”
With a similar logic, during the recent Shanghai Cooperation Organization (SCO) Summit, Chinese President Xi Jinping considered it appropriate to increase the percentage of payments in national currencies within the organization. Xi’s attention to this and other international issues is extremely important; he referred to the responsibility of the SCO in facing “color revolutions” and the interference of foreign powers in the affairs of the countries of the region.
The Chinese leader proposed to the countries of the bloc to increase their payments in national currencies, urging them to counteract unilateral economic sanctions, and power politics. He also called for “cooperation rather than competition” and stated China’s commitment to work together for global security. Clearly, Xi linked the issue of de-dollarization with that of global security and sovereignty, giving this issue a strategic character.
From Russia’s perspective, the materialization of this initiative involves the establishment of an alternative to the SWIFT financial messaging exchange system. The chairman of the board of directors of the Russian bank VTB (one of the largest in the country), Andrei Kostin, proposed to the Central Bank of Russia the creation of a new banking system for the global South to reduce dependence on international regulation.
Kostin felt that the time had come for a deeper transformation because it was not enough for each country to deal with the problem individually. He felt that it was necessary to “undertake fundamental reform to build a new international payments system and the infrastructure for a global capital market.”
To implement the decision, the head of VTB established a four-point roadmap: The first is to establish an alternative to SWIFT, since most of the major Russian banks were disconnected by Western sanctions. Although Russia, China, and India have their own financial messaging systems, they are neither united nor cohesive.
The second point proposes to replace the current US correspondent banking to establish an interlinkage between the banks that join the association through new technologies, such as blockchain.
In the same way, it is essential to seek new tools to attract capital, thereby avoiding the European Union, as is currently the case. Likewise, a parallel infrastructure must be built that is not located in the West, which generates extreme weakness for financial resources that may be subject to sanctions and blockades.
Finally, in order to prevent the effect of the sanctions, Kostin suggested establishing an international “hub” in a Gulf country that would function as a depository liquidation alternative, thus taking advantage of this region which “has a large concentration of capital.”
However, this process cannot be seen as a technical matter; its transcendence is given by the political and geopolitical implications it generates. Basically, it is an expression of the crisis of US hegemony that began in the penultimate decade of the 19th century or, if we look at it from a broader perspective, we could speak of the crisis of the hegemony of the Anglosphere that began in 1763 after the English victory over France in the Seven Year War and was consolidated in 1815 after the Napoleonic defeat at Waterloo.
However, we are only at the beginning of the process. Although in frank decline from the strategic point of view in military matters vis-à-vis Russia and China, the United States still retains a powerful military force and a cultural-media apparatus that favors its dominance. Yet, as the Argentine sociologist Gabriel Merino says, “the 10 percent decline in the last ten years of the dollar as a reserve currency and as a means of global payment shows a process that is likely to deepen in the coming years.”
Merino adds that conditions are being created for the development of a “multi-currency or currency block” scenario. He argues that using the dollar as a weapon of economic war accelerates this process. Janet Yellen, US Treasury Secretary, has herself said that: “The economic sanctions imposed by the United States, particularly on Russia, pose a risk to the hegemony of the dollar, for which the affected countries are seeking alternatives…” Although, according to her, it is difficult for those alternatives to be found.
Merino observes that the “cycles of hegemony in the capitalist world system, the stages of its crisis and its expression in the economic orbit, are observed first in the loss of productive primacy by the hegemon (new ‘workshops of the world’ appear), then in world trade and, finally, in currency and finance. We are probably entering this last phase and there will be a central dispute, which will be defined in relation to a global process.”
In other words, the path of de-dollarization must be seen (as President Xi Jinping said) as a broad process, marked by the need to guarantee security and stability on the planet, which is very complex when the international system is evolving towards multipolarity.
One thing that makes this view different from the past is that it is no longer limited to the countries of the global south. The participation of China and Russia and the BRICS group as active protagonists in the process could be the guarantee that this time it is possible to advance a procedure that will definitively fracture one of the fundamental pillars of the hegemony of the United States and the West.
Translation by Orinoco Tribune
OT/ECS/DD/BLA
