American economic hegemony rested on the dominance of the dollar within the system of international trade (mainly important commodities) and as a global reserve within the framework of the famous Bretton Woods agreement after 1944. This hegemony was combined with the formation of post-war international economic organizations such as the International Monetary Fund (IMF), the World Bank (World Bank) and the World Trade Organization (WTO) which, within the framework of the doctrine of a rules-based world order, expanded the geopolitical power of the USA in the economic field after the period of decolonization in the 1960s and 1670s.
Characteristically, through the programs of the IMF for example in Africa, it was possible to lead the economies in question to a permanent decline while important resources were transferred to the West at humiliating prices. The use of the dollar as a weapon, culminating in sanctions on Russia and the blocking of its banking system by SWIFT, has prompted a number of countries, most notably the BRICS group, led by China and Russia, to seek ways to shape an alternative financial system to keep their economies immune from the Western hegemon.
Characteristically, the Minister of Finance of Russia Anton Siluanov on February 26, 2024 confirmed that Russia is ready to enter into loan contracts in Chinese yuan and not in dollars. However, he revealed that Moscow is waiting for a positive nod from Beijing as intense and delicate discussions continue on the issue as China’s valuable trade surpluses with the West are at stake in the event of a conflict.
Considering that both are BRICS members, the deal has every chance of going through and the loans could be disbursed in Chinese yuan.
USA
If China agrees to disburse loans in Chinese yuan, billions of dollars will not change hands on the world stage and will explode the US economy at a time when the Federal Reserve is increasing the supply of dollars to cover its enormous budget deficits and exorbitant debt of which has been set at 34.4 trillion. USD and will increase by 1 trillion. every 100 days.
As can be seen from the above, as the creditworthiness of the US becomes dangerous not only for the US but also for the entire planet, more and more countries, even their allies, realize that they are becoming a truly reliable trading partner. BRICS aims to put pressure on the US dollar by giving more mileage to the Chinese yuan and other local currencies.
China, for its part, is hesitant as it fears for its place in the World Trade Organization, which it joined at the beginning of the 20th century, and for its trade surpluses with the West in the scenario of a trade war. However, these hesitations seem to be gradually lifted after the policy of de-risking by the US and the EU – that is, the reduction of the risk from the dependence of the supply chains of the West on China.
Transactions in local currencies will become the norm
If the trend continues into the next decade, the dollar is predicted to be the hardest-hit currency in global financial markets. Most countries at a meeting of BRICS finance ministers and central bank governors backed a move away from the dollar, agreeing that settlements in national currencies are what countries in the bloc need.
BRICS finance ministers and central bank chiefs met in Sao Paulo on 27 February.
Most states supported the fact that it is necessary to create new trade settlement mechanisms and shared the experience of developing digital currencies by central banks, the know-how of building platforms and participating in testing various technologies such as Blockchain. That is, in general, they received a fairly positive answer that within the framework of BRICS, in order to increase trade turnover and strengthen economic ties, independent mechanisms for settling transactions in national currencies are naturally needed. The majority of participants supported these ideas.
Single platform and digitization of currencies
In addition, the Russian Ministry of Finance favors the creation of a unified digital platform, a kind of digital gateway for the possible integration of both digital currencies from central banks and national financial messaging systems that will replace the Western-controlled SWIFT.
Technologies now make it possible to create software to which any bank from the BRICS countries can connect and, in fact, through this platform, make trade settlements without having corresponding relationships with a huge number of banks from other countries [ which are connected to the SWIFT system which is controlled by the West.
Financing in local currencies from the New Development Bank
Alongside the above developments, the New Development Bank, the international bank founded by the BRICS group of emerging economies, aims to increase the share of financing it draws in local currencies to 30% from less than 20%.
Characteristically, NDB expects to become the underwriter of a loan in South Africa after the initial sale of 1.5 billion rand ($79 million) in bonds this week. The Shanghai-based bank was commissioned by a program to sell up to 10 billion rand of debt on the Johannesburg Stock Exchange in 2019.
The new order of things in the context of international trade is already here and the developments are expected to be stormy in the context of the ongoing currency war.
