The trend of cutting dependence on the US dollar and switching to national means of payment in international settlements is gaining steam across the globe.
US sanctions against Russia and other countries have put the dollar's dominance at risk, as targeted nations are seeking out alternatives, Treasury Secretary Janet Yellen told an American news outlet on Sunday.
“There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar,” Yellen said.
So, which countries are poised to scrap the use of the US currency in trade transactions? Sputnik explores.
Russia
In a new sign of Russia’s push to ditch the dollar, Foreign Minister Sergey Lavrov said in a statement last week that the trend of abandoning the dollar for settlements in international trade is “irreversible.”
Lavrov added that the process of a number of countries, including Russia, “running away” from the dollar is already in place and that it “will certainly accelerate” in the immediate future.
According to the minister, the US has shot itself in the foot, managing the world economy by means of the dominant role of the dollar. Lavrov added that Washington slapping sanctions on Moscow over its special military operation in Ukraine has indicated the need for other countries to cut their dependence on the West.
This echoed previous remarks by President Vladimir Putin about the “inevitable process of de-dollarization,” which he said is currently taking place in Russia and necessitates the restructuring of the national economy as soon as possible.
The Russian Finance Ministry, in turn, has repeatedly called the dollar “toxic,” while head of Russia’s VTB bank Andrey Kostin described the US currency as Washington’s most powerful weapon, allowing it to "dominate and scare other countries." Russia has no other choice but to "follow the path of de-dollarization,” according to him.
Brazil, China
In a separate development last week, Brazilian President Luiz Inacio Lula da Silva urged BRICS nations to come up with an alternative to replace the dollar in foreign trade. The BRICS countries include Brazil, Russia, India, China, and South Africa.
"Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries? Who decided that the dollar was the (trade) currency after the end of gold parity?" Lula said during a visit to the Shanghai-based New Development Bank.
At the same time, he admitted that ditching the dollar is “difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency." Lula spoke after Brazil clinched a deal with China to trade in their own currencies, in a bid to abandon the US dollar as an intermediary. The Brazilian Trade and Investment Promotion Agency said that the agreement will help “reduce costs and promote even greater bilateral trade and facilitate investment."
Western media, in turn, reported at the time that the deal is expected “to enable China, the top rival to US economic hegemony, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly, exchanging yuan for reais and vice versa instead of going through the dollar.”
A state-run Chinese media outlet has, meanwhile, said that the country’s largest commercial bank, the Industrial and Commercial Bank of China (ICBC), has processed the first cross-border yuan settlement in Brazil at its local branch there, “marking another significant step in the yuan's globalization."
The transaction became the first of its kind since China's Central Bank authorized the ICBC as a yuan clearing bank in Brazil in February.
Chinese experts were cited by the outlet as saying that “yuan settlements are expected to boost the regional economic and trade recovery in the post-COVID era and help companies to find a more reliable alternative to the US dollar as they seek safer cross-border trade and investment deals.”
Zhang Jieyu, assistant research fellow at the Department for Latin American and Caribbean Studies, China Institute of International Studies, told the outlet that the yuan settlement with Brazil “sends a clear message of the growing acceptance and influence of the Chinese currency globally which will serve as an example for more countries to follow.” The outlet reported that “while the US dollar still dominates Brazil's foreign exchange reserves, the yuan's role, as a rising international reserve currency, has been highlighted lately.”
A recent survey report by the Central Bank of Brazil showed that as of the end of 2022, the proportion of the yuan in Brazil's international exchange reserves had reached 5.37%, exceeding the proportion of the euro at 4.74%, which means that the yuan becomes the South American country's second-largest reserve currency.
India
While India is downbeat about trading in yuan due to the country’s tense relations with China, the very idea of diversifying foreign trade currencies is of great interest to New Delhi.
Media reports said last week that a whole array of countries was holding talks with India’s Central Bank to discuss the conclusion of mutual trade transactions in Indian rupees.
The countries reportedly include India’s immediate neighbors, such as the Maldives and Myanmar, as well as Russia, and even the UK, Germany, and New Zealand.
According to the reports, companies and banks of the above-mentioned countries now plan to create the so-called vostro accounts in Indian banks, which will help them clinch deals for the supply of Indian goods abroad, and vice versa.
At the moment, the system looks rather cumbersome, given that the opening of each such account should be approved by Indian regulators, and that accumulated account balances can only be invested in Indian government bonds. Experts say that even though the system is out of sync with free trade principles, it represents a major step forward. The scheme is thought to have already been tested in transactions related to Russian-Indian trade and that of India and Iran.
BRICS' Single Drive to Scrap Dollar
As for BRICS on the whole, Russian Foreign Minister Sergey Lavrov said in February that the group’s member states are already actively working on increasing payments in national currencies in mutual trade and financial operations due to the unreliability of the dollar.
“The share of national currencies in settlements between the BRICS countries is already rapidly growing. The BRICS countries have initiatives that address the need to work on the creation of their own currency. The reason is very simple: we cannot rely on mechanisms which are in the hands of those who can cheat at any time and refuse to fulfill their obligations," Lavrov told reporters.
Russian economist and researcher Mikhail Khazin told Sputnik in this vein that the dollar's dominance might be brought to an end by the emergence of several alternative currency zones, comprising the Latin American, Eurasian, Chinese, and Indian regions.
Khazin argued that the process is already underway, and that "it now makes sense to create a payment system that combines the currency systems of the Eurasian, Chinese, Indian, and Latin American zones." "It is necessary to create a payment system independent of the dollar," he pointed out.
Gulf Nations
In mid-March, the Chinese Export-Import Bank reportedly clinched the first cooperation and loan deal with the National Bank of Saudi Arabia. The goal is to ensure future settlements of transactions between companies from the two countries in national currencies.
According to experts, Riyadh began to mull switching to yuan trading as early as in March 2022, and its active cooperation with Beijing in this sector in recent months has added significantly to the process.
In a separate development late last month, China signed the first ever yuan-settled energy deal pertaining to some 65,000 tons of the UAE’s liquefied natural gas (LNG).
The transaction was carried out by the China National Offshore Oil Corporation (CNOOC) and France's TotalEnergies through the Shanghai Petroleum and Natural Gas Exchange. Representatives of the Chinese oil and gas company CNOOC said in this regard that they intend to continue promoting "innovation" in LNG trade. The deal came after Iraq's Central Bank announced in February that it planned to allow trade from China to be settled directly in yuan for the first time, in an effort to improve access to foreign currency.
The Central Bank said it looks to compensate for a dollar shortage in local markets, which had previously made the government approve a currency revaluation. "It is the first time imports would be financed from China in yuan, as Iraqi imports from China have been financed in [US] dollars only," Mudhir Salih, the government's economic adviser, told a UK news agency.
The remarks followed Russian expert Mikhail Khazin telling Sputnik that the “inevitable” process of de-dollarization has been facilitated by Washington's sweeping sanctions against major global players, including Russia, and the use of the dollar as a "punishing" mechanism. By freezing Russian Central Bank assets, severing the nation from the SWIFT payment system, and prohibiting exports of US dollar-denominated banknotes to the country, Washington sent an ominous signal to other world players, the Russian expert concluded.
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