JOSHUA NOTT: Brics leaders dream of de-dollarisation despite testy internal relations

In his opening remarks at the 2019 Brics summit, Chinese President Xi Jinping mused that Brazil, Russia, India, China and SA have the opportunity to “push for the reform of the global economic governance system”.

Translated from diplomatic speech to real talk: the decline of US dollar hegemony, revisions to international financial institutions’ rules and a move away from trade deals denominated in dollars.

The task would require a host of factors going the Brics’ way — a watertight alliance, strong domestic economic growth, liquid capital markets, reliable governance systems and more than a bit of luck. 

A pandemic and war in Europe later, and all of these factors are missing. China, the Brics’ largest economy, is grappling with a host of economic challenges, including an overly indebted property market, stifling tech regulation, deflationary pressures, youth unemployment (21%), and a rapidly ageing population. As for the alliance, the Brics coalition is a tense one, especially between India and China with their protracted border disputes.

For Brazil and SA, China’s inward turn to solve local issues means the closure of taps previously gushing with capital (notably from China’s Belt & Road initiative). The rising cost of capital and a less spendthrift China is hurting the African continent, with a marked decline in African exports. As for the “R” in the acronym, Russia’s economy is in a bad way, with sanctions biting, its best talent fleeing and its illegal war effort draining state coffers. 

Despite its challenges and testy internal relations, Brics’ leaders are united in their dream of an international financial and trading system that is less reliant on the greenback. In April Brazil’s president, Luiz Inácio Lula da Silva, said: “Every night... [I ask myself] why all countries have to base their trade on the US dollar”. 

The dream of a Brics currency is not something out of keeping with the ambitions of the bloc. Talk of de-dollarisation is positively nightmarish for the West. For proof, consider the US treasury secretary’s reaction to all this alternate currency talk. Speaking in no uncertain terms, Janet Yellen spelt out that the dollar is dominant for many reasons and that the world is a better place for it.

Yet in a paradoxical twist, de-dollarisation may not arrive thanks to proactive measures by the Brics. Instead, it may emerge as a side effect of US actions and those of its Western allies.

Instructive of this view has been the reaction to the placing of sanctions on Russia, the confiscation of foreign held assets, and the banning of Russian banks from the Swift international payments system. These moves had a chilling effect on developing countries’ reliance on the greenback, and in their dealings with US and European banks.

Autocrats around the globe are hunting for alternate stores of value, whether gold or other currencies, not to mention safe havens to physically keep their assets in an effort to avoid the long arm of the US treasury. The paradox is that the deployment of dollar-based sanctions consequently undermines dollar dominance. Less reliance on the dollar means the blunting of economic sanctions, thereby increasing the probability of actual weapons being drawn. 

If one twist wasn’t enough, there is a distinct irony in SA pushing for de-dollarisation. US sanctions played no small part in SA’s march to democracy, crippling the apartheid economy and strengthening the ANC’s position at the negotiating table. Whether the Brics’ dream is fulfilled, one thing is for certain — the world today is multipolar. The post-Cold War hegemony of the West is waning, and with it the financial institutions and trading norms that came to define the 21st century.

We are awakening to a new world, one in which a Brics currency may be just the start.

• Nott (@TheAfricaBrief) works for a venture facility for public benefit and is based in London. He writes in his personal capacity.