- Brics Bank introduces a 3-year plan to de-dollarize, with new member nations to strengthen the move.
- Multiple countries, led by China and Russia, take active steps to decrease their dependence on the dollar.
Drawing from the latest news from Khaleej Times, the Brics New Development Bank is taking definitive strides in a venture to potentially replace the US dollar as the primary global reserve currency. With Iraq joining the de-dollarization trend, the bank’s intentions are clearer than ever.
The Move Towards De-dollarization
The recent addition of countries such as the UAE, Saudi Arabia, Egypt, Argentina, Iran, and Ethiopia to the Brics Bank has been followed by the announcement of a 3-year plan specifically designed to encourage lending in local currencies. This will likely decrease the number of transactions currently made in the dollar. This move is further accentuated by the Iraqi central bank’s decision to halt dollar-based cash withdrawals and transactions starting January 1, 2024.
Major Countries Championing the Shift
China and Russia are at the forefront of this significant shift, with each country taking measures to reduce dollar reliance. Beijing, for instance, is now urging Middle Eastern suppliers to transact in the yuan instead of the dollar. Concurrently, Moscow has imposed regulations that prevent “unfriendly” countries from using any currency except the rouble for trades. The ripple effects of de-dollarization are further evident as India establishes an agreement with the UAE. This agreement allows trades to be settled in rupees, eliminating the need for dollar conversions, making cross-border transactions more seamless and fostering deeper economic ties.
US Treasury Holdings: A Decline
Recent data from the US Treasury Department reveals a decrease in the US Treasury holdings by key Brics members and new joiners. China’s holdings saw a reduction of $13.6 billion, Brazil’s went down by $2.7 billion, and Saudi Arabia decreased its holdings by $1.1 billion. Even India, a founding Brics member, witnessed a reduction in its treasury holdings.
Challenges in Establishing a New Currency
While there’s speculation about the introduction of a new Brics currency possibly inspired by the IMF’s Special Drawing Rights, experts foresee challenges. One primary concern is the imbalance in trade within the Brics countries. Both India and South Africa have experienced consistent trade deficits with their Brics counterparts. Another point of contention is the introduction of a new currency for trade settlements. Experts argue that this move could complicate transactions, especially when compared to the simplicity offered by the dollar.