Trickle Down BRICS

The new bloc wants to dethrone the USD

The BRICS coalition of new heavyweight political powers is making moves to dethrone the US Dollar from its position as global reserve currency, which could topple US hegemony and dramatically shift geopolitical fault lines around the world.

The political group (which began as Brazil, Russia, India, China, South Africa and now also includes the UAE, Egypt, Ethiopia and Iran) is seeking to reduce their dependence on the US Dollar by creating a block-chain based payment system which would allow them to trade internationally in different currencies. This is part of a multi-faceted “de-dollarization” strategy to loosen the United States’ grip on global trade, and boost both members’ own currencies, bilateral trade, and the currencies of developing nations.

If the members agree to launch BRICS-pay, which is whispered to be announced at their upcoming October conference, the effect would be a drop in the value of the US Dollar, US Treasury bonds, and US trade. The effects of dethroning the Dollar would ripple across the world, and could see a knock-on devaluation of currencies whose central bank reserves are mostly made up of the Dollar. It would also surely wobble the Euro and the British Pound, two other hard currencies relied upon for reserves, whose main political alliances ensure a continuing dependence on the USD. In short, de-dollarization could change everything.

Despite this, it’s barely made the news, and reports written in papers like the Financial Times seem crafted to quell anxiety rather than face a new reality, as expressed by this letter to the editor. But the threat is clear, despite misplaced Western assurances, like the New York Federal Bank claiming BRICS is a “small group of countries”. It is, but 140 other nations have expressed interest in joining a new international banking system in order to lessen their own dependence on the Dollar, whose increasing volatility due to fluctuations in global trade often hits the shores of the nations furthest away the hardest. Similarly, last year the former Goldman Sachs executive who coined the acronym lambasted the group for having “never achieved anything since they first started meeting”. This is objectively false, as the group has created the National Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), two institutions to challenge the World Bank and the IMF, respectively. Developing nations can now raise condition-free finance in their local currencies through the NDB, and the CRA insulates members’ economies from medium-sized crises, protecting them from going directly to the IMF for conditional support.

Additionally, the NDB has secured a clean credit rating which has buffeted both the Chinese and Russian economies when their own credit rating has fallen, as both members can borrow from global markets at much cheaper rates through the bank.

New national nondollar payment infrastructure has already been deployed by some members, which could be built into an alternative to the SWIFT banking system. This would dramatically shift geopolitical power as access to the international banking system is essentially controlled by the United States. In February, I reported how the UAE was investigated by the Financial Action Task Force (FATF), an OECD initiative, for propping up the Russian Ruble with Sudanese gold. This landed them on the FATF’s “grey list”, threatening their access to the international banking system which would have choked their economies. The UAE has since been removed, but Iran and Myanmar remain on the FATF’s black list, which acts as a complete economic sanction. It will therefore surprise nobody if, in October, Iran and the UAE come out as vocal supporters of a new international banking system which would bypass American oversight.

All of this really matters. BRICS nations account for 44% of crude oil production, which has been their main source of political power as independent nations, while the West has dominated the service economy like banking. Bypassing the existing financial institutions by opening local currencies up to the world, offering no-strings attached loan financing, and trading in currencies other than the Dollar doesn’t just threaten Western hegemony, but actively topples it. No longer will Old World political giants be able to effectively steal majority world resources under the guise of paying off debt; economies that have been orchestrated to under-develop will free themselves of Dollar shackles, or at the very least see the price of their debt decrease. BRICS finance will be a welcome alternative to nations struggling to stem the departing tide of their under-priced commodities. This could see the beginning of an economic boom in the neo-colonised world, where both population and the earth is fruitful. Yet, this boom would be attached to a new political world order dictated by autocrats and regimes who seek to outgrow the United States’ own bloated power and resource-access. The result in a world reeling from eco-crises could be devastating: more resource-scrambles, more fossil fuel production, more economic growth, all while we need to be decreasing our appetite.

On a local level, de-dollarization could pop the housing market bubble, given just how intertwined the real estate and banking markets are. We would surely see energy prices go up due to the loss in value of allied currencies like the EUR and GBP, but also possibly due to market volatility after the initial decoupling of the USD and oil. We could then also be subject to price-gouging by the BRICS nations, who will likely become our main suppliers of oil and LNG as the US’ commodities market wobbles. Such market volatility could also see dramatic gains and losses in vital assets like pensions—again, more likely losses than gains for investments made through the existing, Western financial infrastructure.

Politically, nations like Iran would be open to trade with the world, undoubtedly impacting alliances in a Middle East that is threatening to boil over into multiple wars. The USA, UK, and Europe would see an immediate weakening in their power, and governments would perhaps be forced to cough up huge financial packages to rescue their own currencies and bail out banks, all at a time when cost of living for their most vulnerable residents is going up. What would this do to tensions already running high? In countries suffering from riots? In nations merely an election away from fascism?

The fall-out is unimaginably complex, one I can only begin to grasp at. There is no doubt we need a new geopolitical order that does not guarantee almost absolute power to any one regime. Yet, the new order taking shape ascbscribes to the same fallacy of zero-sum politics. Now, in a time of increasing chaos, we need coalitions that seek to challenge the status quo, not mirror it—for such transitions are always violent.

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