There
is undeniable excitement about challenges to the American dollar’s position as
the global reserve currency.
While
economists have warned for years that the dollar’s dominance shouldn’t be a
foregone conclusion, few have paid close attention to the warnings, especially
in the halls of American power. After Russia invaded Ukraine and US sanctions
failed to deliver a decisive blow against the Russian economy, new questions
emerged about how the global economy grew beyond America’s grip.
اضافة اعلان
These
discussions have reached a fever pitch in debates about the creation of a
BRICS currency. The BRICS – a grouping of the economies of Brazil, Russia,
India, China, and South Africa – represents an alternative to
Western-controlled international organizations such as the World Bank and
International Monetary Fund.
Together,
these economies represent an incredible swath of the global economy, and their
influence extends to areas beyond the American purview in the Global South.
Creating a shared currency in these economies would upend international trade
and represent a clear challenge to the dollar as the world’s reserve currency.
But
this article is not about a BRICS currency because we are far from its
creation.
These developments might seem small, taken by themselves but viewed together, it’s clear that a profound shift is taking place in the global economy. Without the creation of a BRICS currency, major economies of the Global South are forging partnerships that will allow them to move their economies off the US dollar.
Instead,
we must recognize that discussion about a BRICS currency overshadows more
significant developments quietly chipping away at the dollar’s current
dominance. Earlier this month, India and the United Arab Emirates agreed to use
their local currencies for cross-border transactions. On the surface, this
might not seem particularly important. Countries trade in their local
currencies all the time. However, this small development is laying the
foundations for dramatic changes in the near future.
Trade between India and UAE is booming
Trade
between India and the UAE is booming. From April 2022 to March 2023, bilateral
trade was $84.5 billion. Oil drives this, as India is one of the world’s
largest oil importers and consumers. The UAE is also the second-largest source
of remittances for India. Remittance payments – money sent back home by Indians
working outside the country – are vital
to the Indian economy. In the 2021-2022 fiscal year, India received close to $90
billion in remittance payments, the highest on record for the country.
Remittance
payments and oil sales have been conducted in US dollars for decades, but with
the new focus on trading in local currencies, there is a clear shift away from
the dollar. One official told
Reuters that
India is preparing its first rupee payment for Emirati oil to the Abu Dhabi
National Oil Co in the coming months.
Part
of the power of the US dollar as a global reserve currency is how it is used for
transactions between countries like the UAE and India.
China actively investing in Saudi Arabia
This
is especially clear in the oil trade, given that oil is almost universally
traded in dollars. If the US wants to punish the geopolitical decisions of
other countries like Russia, it can exercise its control over the dollar in the
oil trade. This is one reason why China has been actively
investing in
Saudi Arabia.
As
part of its years-long push to break the oil trade’s reliance on dollars and
shift it to the Chinese Yuan, China has been on a charm offensive in Saudi
Arabia. China has even floated the idea of a free
trade agreement between the two nations, attempted to buy a
minority stake in Saudi Aramco, and welcomed the kingdom’s multi-billion
dollar investments
in China.
A relationship that has
worried the U.S.
The
closeness of the relationship has worried the US, but the Biden administration
has proved unable or unwilling to stop China and Saudi Arabia from moving
closer together. Saudi Arabia has also been leveraging its position as a
primary supplier of crude oil to India for its geopolitical ambitions of
carving out a genuinely independent foreign policy.
This is especially clear in the oil trade, given that oil is almost universally traded in dollars. If the US wants to punish the geopolitical decisions of other countries like Russia, it can exercise its control over the dollar in the oil trade. This is one reason why China has been actively investing in Saudi Arabia.
These
developments might seem small, taken by themselves but viewed together, it’s
clear that a profound shift is taking place in the global economy. Without the
creation of a BRICS currency, major economies of the Global South are forging
partnerships that will allow them to move their economies off the US dollar. In
another part of the world, Brazil
and Argentina are
discussing the creation of a common currency.
While
these plans might seem “pie in the sky” right now, a foundation is being laid
that will seriously challenge the dollar’s dominance. The US needs a new
strategy to contend with these challenges coming down the pike, and so far,
it’s hard to detect one in Washington.
It
is essential to see the forest for the trees. The dollar isn’t going to be
killed off by one contender currency like a BRICS currency. It will lose its
power and dominance thanks to small steps taken by countries that prefer to
determine their affairs without the influence of a global reserve country. As
the world’s second-largest economy, China is helping other countries like Saudi
Arabia, push their visions for global power. It’s all happening in real-time.
You just have to look at the details.
Joseph Dana is a writer based in South Africa and
the Middle East. He has reported from Jerusalem, Ramallah, Cairo,
Istanbul, and Abu Dhabi. He was formerly editor-in-chief of emerge85,
a media project based in Abu Dhabi exploring change in emerging
markets. Twitter: @ibnezra
Read more Opinion and Analysis
Jordan News
.jpg)
.jpg)
