2024-09-01 18:35:28
Central banks’ foreign exchange reserves in dollars have reached a historic low.
According to the International Monetary Fund, foreign exchange reserves of US dollars and Treasury bills have fallen to 58.9% in 2024, compared to 70% two decades ago. “De-dollarization is here, whether we like it or not,” according to the Quincy Institute for Responsible Statecraft , a peace-oriented think tank based in Washington.
Following the Russian invasion of Ukraine in 2022, the G7 currencies lost some of their international appeal as global reserves held in these currencies fell by 8%. Central banks began to favor gold.
A recent World Gold Council survey also revealed that the gold market from central banks exceeded 1,037 tonnes in 2023, the second highest level ever. “Many countries are diversifying their reserves away from the dollar and embracing gold as a ‘currency without a state’, which is not controlled by any government and therefore not subject to the same political pressures as traditional currencies,” market players explain to Naftemporiki.
In recent years, more and more countries are trying to break away from their dependence on the dollar.
At the pace of BRICS
Above all, the BRICS countries: an association of Brazil, Russia, India, China and South Africa, which has expanded to include Egypt, Ethiopia, Iran and the United Arab Emirates, and now comes the series of Azerbaijan. BRICS efforts to “de-dollarize” are aimed at weakening of sovereignty of the Western payment system, especially the SWIFT international banking system.
The dollar has served as the world’s reserve currency for several decades and has given the United States enormous geopolitical power.
After World War II, the United States used the dollar as a foreign policy tool. By imposing sanctions and restricting access to the global financial system to countries that are considered “pariahs” of the international community and hostile.
This instrument of sanctions was particularly used in the context of the war in Ukraine after the Russian invasion.
15,000 financial penalties!
The Washington Post even reports that the United States has put a third of the world under sanctions. Not only that, but up to 60% of all low-income countries. Today more than 15,000 economic sanctions have been imposed by the US.
Η Washington Post reveals in fact, that several experts and officials from various American governments have expressed doubts about the real effectiveness of sanctions, admitting that they have become the main, almost automatic, instrument of American foreign policy. This, therefore, would have led to an underestimation of the potential collateral damage.
For some time now, China and other members of the BRICS alliance have been looking for alternatives to free themselves from the influence of the Western financial system.
In this context, they have significantly reduced their dollar assets, shifting focus to gold to minimize their financial vulnerability. In summary, the rise in gold reserves reflects a shift in global geoeconomic dynamics, with an increasing number of countries moving towards greater economic autonomy and a reduction in the influence of the dollar, seeking stability in a context of increasing global economic uncertainty.
BRICS trade
The mutual trade between China, India, Brazil, Russia and South Africa reached nearly $678 billion annually. At the same time, over the past 10 years, world trade has grown by 3% per year, that of BRICS with the rest of the world by 2.9% and that within the group by 10.7%.
We should not be surprised if at the 16th summit in Kazan, Russia, on October 22-24, they present proposals and initiatives of such economic and political value that they will shake the old geopolitical order to its foundations.
For eight months this year they have carried out dozens of conferences and preparatory meetings on all matters of global interest.
One of the topics covered, monetary and financial, undoubtedly deserves more attention because of its inevitable geopolitical implications.
They say they want to develop interbank cooperation, providing assistance in the transformation of the international payment system using alternative financial technologies, expanding the use of national currencies of individual countries, in mutual trade. To this end, finance ministers and central bank governors have been tasked with reviewing and reporting to Kazan on the use of local currencies and payment platforms.
Will the dollar weaken?
A shift to the use of alternative payment systems, such as those proposed by the BRICS, could further undermine the dominance of the dollar and force the United States to revise its global economic strategy
A geopolitical realignment by Russia and China is on the horizon. “We are in favor of using the Chinese yuan for payments between Russia and the countries of Asia, Africa and Latin America,” Russian President Vladimir Putin has said.
THE Farid Zakaria, CNN analyst interprets this statement as follows: “The world’s second largest economy and largest energy exporter is actively trying to break the dominance of the dollar as the anchor of the international financial system.
Already, Zakaria says, Russia and China hold less of their central bank reserves in dollars than before and conduct most of their transactions in yuan.
Efforts aimed at making the nations involved more independent play a central role in the BRICS countries
The introduction of cryptocurrencies
This new system is intended to offer an alternative to SWIFT and allow member states to conduct trade and financial transactions independently of the US dollar
In addition to creating its own payment system, the introduction of cryptocurrencies also plays an important role in the planned de-dollarization.
A key advantage of cryptocurrencies is their independence from traditional financial systems such as SWIFT.
The BRICS countries intend to conduct trade transactions without the intervention of banks or government institutions. Conversely, the anonymity of many cryptocurrencies also raises concerns about illegal activities such as money laundering or terrorist financing.
They are escaping Western domination
Finally, the de-dollarization of the BRICS countries represents an opportunity for them to escape Western dominance. Introducing their own payment system could pave the way for a multipolar global economy. Notable: According to constant media reports in the crypto industry, at least 159 countries around the world are interested in participating.
A new global monetary system, or at least one in which there is no near-universal reserve currency, would mean a realignment of political, economic and military power: a geopolitical realignment not seen since the end of the Cold War or even World War II War.