Will American Arrogance and BRICS Bring About the Demise of the Dollar?
The United States gleefully sanctions countries and everything in sight, weaponizing its economic and financial power by using the dollar and political pressure to bend adversaries to its will. The United States uses secondary sanctions or the concept of extraterritoriality — forcing other countries to support its sanctions on its adversaries, as if the world were part of the U.S., or face sanctions themselves — to make sanctions even more potent. Since about 1997, the U.S. has stepped up its sanctioning to such an extent that today it has more sanctions on its books than the rest of the world combined. “The list of individuals and entities sanctioned by the U.S. Treasury’s Office of Foreign Assets Control now runs to 2,206 pages and lists more than 12,000 names.” (https://www.ft.com/content/3888bdba-d0d6-49a1-9e78-4d07ce458f42?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content).
As the issuer of the dollar, the U.S. gets enormous benefit from its associated seigniorage up front — namely, for countries to have dollars they have to earn them whereas the U.S. simply prints them and is able to purchase whatever it wants! As the ultimate source of dollars, the U.S. faces less pressure than other countries when it comes to balance of payments and financial reserves constraints. Although the U.S. receives all these benefits because of its almighty dollar, this is not the what causes the most concern to other countries. Most objectionable to the rest of the world is the fact that the U.S. uses the dollar as a weapon to impede other countries’ trade and financial access; when a country is to receive dollars for trade or services, the U.S. can block the ensuing transfer. Over the last 25 years or so, the U.S. has increasingly used the dollar to coerce its adversaries into submission. As a result, de-dollarization has been a major goal of BRICS, with hoped-for economic and financial benefits and economic and financial freedom to follow. But this has not been easy. It was assumed the euro would chip away at the dollar’s dominance but this has been a slow grind with more than 80 percent of world trade still denominated in dollars today.
While the global south and BRICS have wanted to reduce the rule of the dollar and the international power of the G-7 in international finance, including at the IMF and the World Bank, the catalyst for the expansion of BRICS from five to eleven has been the United States’ cavalier and prolific imposition of sanctions and their re-enforcement with secondary sanctions (extraterritoriality). Over the last 25 years, sanctions have received increasing scrutiny after the myriad of sanctions on Iran, Venezuela and, more recently, on Russia. To be effective in chipping away at the hegemony of the United States and the G-7, BRICS needs to become more dominant in the international economic system — higher GDP, larger role in international trade and investment, a coordinated plan to substitute the yuan (renminbi) for the dollar in their exports and imports, selling their holdings of U.S. Treasuries, buying each other’s sovereign debt and even those of euro-zone countries and above all not bowing to secondary sanctions.
An expanded BRICS will afford some of these enhancements to the new group. Projections for the next 5 years, based on IMF data, show some promising developments, which, if continued after 2028 could usher in a new era in international economic and financial relations. The G-7’s share of global GDP (using Purchasing Power Parity exchange rates) is projected to fall from about 43.5% in 2023 to 41% in 2028 as the share of an expanded BRICS is projected to increase from 29% in 2023 to 31.5% in 2028. At the same time, the role of an expanded BRICS in international finance will get a big boost from the membership of Saudi Arabia and the UAE.
Although these projections are important for conventional economic and financial power and in support of promoting the yuan, an expanded BRICS may have additional weapons in its arsenal, especially in its effort to push back on U.S. sanctions and Western hegemony. The expanded BRICS will possess a significant share of some of the most needed raw materials for a modern economy. In oil, the addition of Saudi Arabia, Iran, the UAE and the implicit acquiescence of Venezuela to Russia’s reserves gives BRICS about 60% of global reserves and in natural gas the combination of Russia and Iran (the two largest reserves of natural gas) would afford BRICS great leverage against the U.S. if they choose to use it. In rare earth metals (China, Brazil and Russia) and in lithium reserves (Argentina along with a sympathetic Bolivia) BRICS would provide another problem for the West.
The United States, not China, has been the catalyst for an expanded BRICS. Although the global south has long been unhappy about the heavy thumb of the United States and the West tilting the balance of power in their own favor, all they have done up to now is to complain. Sanctions on Russia and Iran have been a wake-up call for China, Brazil and India. They can see that U.S. sanctions re-enforced with extraterritoriality have a devastating and long-term effect on sanctioned countries and spill over to undermine their own economic and financial health too. Worse, the U.S. could choose to sanction any of them with or without cause. They also see that the U.S. has expanded the use of sanctions to a level that has handcuffed much of the world. They hope that an expanded BRICS and more deliberate coordination will slowly chip away at U.S. hegemony. India was clearly reluctant to invite Iran into the club as BRICS could be seen as anti-Western. But China, the dominant power in the club which had brokered Iran and Saudi Arabia’s rapprochement, pushed for Iran, as did Russia. Moreover, it would have been hard to admit three Arab countries and to exclude Iran, the country that is supporting Russia in its war on Ukraine. As important this expansion is, there are another 40 or so countries who have applied for BRICS membership and are waiting in the wings.
BRICS is a club that if carefully managed and if members adopt sound economic and financial policies, could undermine and in time topple U.S. and Western economic and financial power to create a multi-polar world. However, countries should be wary not to do everything in their power to escape from U.S. control and crawl smack into China’s basket!