In the upcoming weeks, the BRICS countries are scheduled to meet in St. Petersburg to strengthen their steps in the de-dollarisation process. All the nation’s members are raising their voices against the discriminated economic sanctions, and blocking of international currency reserves by the USA.

These one-sided sanctions debarred countries from dollar payments, and this raised the voice for De-dollarisation across the region. However, China and Russia are facing severe sanctions by the US and their allies. For instance, the EU and US have blocked more than $300 billion of Russian assets globally.

What De-Dollarisation and Why is BRCS Promoting?

It’s the process of replacing the use of dollars in international trade and promoting the exchange of goods with their local currencies.

BRICS nations are among the powerful trade blocks with 30% of the world’s GDP and 40% of the population. This massive market share of BRICS members poses threat to the US hegemony on financial power globally.

Currency Reserve: The Way to Win the Market

In a globalised world, having a currency reserve becomes crucial as it makes the exchange of goods smoother than ever. Additionally, this ensures the country’s dominance over the trade, for instance, US dollar dominance helped establish the world economic power. Let’s take a view of top holders for currency reserve –

The total forex reserve stood at $12 trillion globally in the first quarter of 2024. More than 50% of the reserve is in US dollars valued at $6.7 trillion in the same period. Euro, Renminbi, Yen and Pound are the top reserve currencies after the US dollar. These currencies together contribute a lot to the international monetary and reserve system. In Q1 of 2024, their reserve stood at $2263, $246, $654, and $562 billion in the same period.

Top Foreign Exchange Reserves	Q1 2023	Q2 2023	Q3 2023	Q4 2023	Q1 2024
Total Foreign Exchange Reserves	12,025	12,050	11,845	12,342	12,349
Allocated Reserves	11,151	11,176	10,977	11,452	11,497
Claims in U.S. dollars	6,631	6,640	6,496	6,693	6,766
Claims in euro	2,183	2,204	2,146	2,283	2,263
Claims in Chinese renminbi	287	273	260	262	246
Claims in Japanese yen	608	600	601	651	654
Claims in pounds sterling	530	532	527	556	562

Value USD Billion

Asia and De-Dollarisation

Over the years, Asia has emerged as the leading player in the international market, contributing around 40% of the world trade and 60% of the population.

Asia’s total exports to China, the US, Japan, and Singapore stood at $48.2, $38, $20.1, and $13.8 billion respectively, in Q1 of 2024. This massive trade volume makes Asia the main contender for the de-dollarisation process. Among Asia, China is actively expanding its base across the regions in the race for a non-traditional reserve currency.

For instance, the trade settlement between Russia and China is conducted with 90-95% in Yuan and Rubble. On the other hand, India and Russia are working on a trade pact to conduct their exchange of goods in Rupee and Rubble.

Countries	2023Q1	2023 Q2	2023 Q3	2023 Q4	2024 Q1
China	50.4	50.1	51.4	54.5	48.2
US	39.7	37.1	38.6	37.8	38
Japan	23.1	19.7	20.1	20.5	20.1
Singapore	18.9	18.1	16.9	16.8	16.6
India	13.3	13	14	14.3	13.8

Value USD Billion

BRICS Currency: A Rising Threat for USA Dollar Dominance

BRICS is a group of five countries consisting of Brazil, Russia, India, China, and South Africa formed in 2009. The continuously increasing popularity has attracted several countries like Argentina, Saudi Arabia, Ethiopia, and UAE to show interest in joining the bloc.

This important economic bloc contributes to 45% of the world’s population, 30% of the global landmass, 24% of GDP, and 16% of international trade. In a collective voice, all the member countries raised their voice to work on a common currency for goods exchange.  Let’s see how this trade bloc poses a threat to the US dollar –

• Challenge to US dollar Dominance –

The dollar is known for its stability and acceptance worldwide. However, the rise of BRICS holds a significant portion of their foreign trade. If this bloc used common currency widely, it could reduce the demand for dollars, and badly impact the US economy in the coming days.

• Financial Stability –

The rise in acceptance of BRICS currency or trade-in local payment system methods will threaten the US financial stability. This will erode the investor’s trust, raise borrowing costs, make the dollar less attractive for international trade, etc. All these phenomena paralyzed the US monetary system.

• Losing of Market

American exporters and Importers will find it difficult to trade with BRICS nations, especially with China and Russia.

How BRICS Strengthen Position to De-Dollarized the Trade –

Over the years, the US with its mighty power has imposed several unilateral sanctions on countries and hamper their economic growth. To mitigate the effect of sanctions, BRICS has taken some significant steps to bolster economic connectivity while promoting regional currency. Here’s how –

• BRICS Payment System –

To counter the US unilateral sanctions, Russia in March 2024 suggested a constructive framework for building a payment system that works like the SWIFT system. This allows member nations to settle their trade with an integrated financial system that connects the central bank.

• Promote local Currency Trade

All the member countries are working on bilateral trade deals to conduct their trade activity in local currency. This makes less reliable on US dollar exports and imports. For instance, Rubble and Renminbi trade crossed around $240 billion in value.

• BRICS Expansion

Several countries have shown interest in joining the BRICS trade bloc. Among the interested countries, Saudi Arabia, UAE, and Ethiopia have been invited to join BRICS in 2024.

The free flow of international trade is continuously under attack by unilateral economic sanctions imposed through US dollars. This affects the supply chain across the region. Countries must start trading in local currencies like BRICS nations to mitigate this effect.