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BRICS and De-dollarisation: A Strategic Shift in Global Economy
Context:
The US administration under President Donald Trump has proposed to impose a 100% tariff on BRICS members if they proceed with de-dollarisation. The move reflects concerns over an alternative to the dollar gaining momentum.
BRICS’ Attempt to De-dollarise the Global Economy
- The expansion of BRICS in 2004 and its trade strategies have given credibility to an alternative payment system.
- Aims to reduce reliance on the US dollar for trade settlements.
- Encourages member nations to settle transactions in local currencies to bypass economic sanctions.
- Strengthening of BRICS Cross-border Payment System (BCPS) as a step towards financial independence.
Key Impacts of BRICS’ De-dollarisation Efforts
- Blunting Economic Sanctions: Russia leveraged alternative payment mechanisms to mitigate the effects of US and EU sanctions.
- BRICS members increased trade in local currencies, lessening the impact of SWIFT exclusion.
- Reducing Dependence on SWIFT and Dollar: Russia and China are developing parallel banking infrastructure to avoid reliance on Western systems.
- India signed bilateral trade agreements in local currencies with UAE, Malaysia, and Indonesia.
- Use of digital payment systems and financial technologies to facilitate cross-border trade.
- Diversification of Reserves: Countries shifting foreign exchange reserves from the dollar to gold and other currencies.
- Increasing use of Chinese yuan (RMB) in international trade.
Trump Administration’s Response to De-dollarisation
- 100% tariff on BRICS members as a punitive measure.
- Restriction of access to US financial institutions for nations participating in BRICS de-dollarisation efforts.
- Diplomatic pressure on key BRICS economies like India and Brazil to distance themselves from Chinese-led financial initiatives.
- Reinforcing the dominance of the US dollar by leveraging multilateral financial institutions like the IMF and World Bank.
Other Global Attempts at De-dollarisation
- Argentina used China’s swap line to settle IMF debts in RMB (2023).
- Saudi Arabia and UAE exploring non-dollar oil trade, particularly in RMB and Euro.
- The European Union’s INSTEX aimed to facilitate trade with Iran outside the dollar-based system.
- Russia and China’s joint financial initiatives to replace SWIFT for cross-border payments.
BRICS and Its Expansion: 10-member BRICS and BRICS+
- BRICS was initially formed as BRIC (Brazil, Russia, India, China) in 2009, with South Africa joining in 2010.
- In 2024, BRICS expanded to include UAE, Egypt, Ethiopia, and Iran.
- Indonesia joined in 2025, taking the total to 10 members.
- Creation of BRICS+, a partner country framework for broader economic cooperation.
Significance of BRICS in the Global Order
- Voice of the Global South:
- Represents 55% of the global population and 40% of global GDP (PPP).
- Strengthens the bargaining power of developing nations in global financial affairs.
- Alternative Global Order:
- Seeks a multipolar financial system, reducing the US and EU’s monopoly over global trade.
- Provides alternatives to IMF and World Bank-led economic structures.
- Cross-border Trade Settlement in Local Currencies:
- India’s trade agreements using INR, China’s promotion of RMB, and digital payment mechanisms.
- Reduces transaction costs and currency volatility risks.
- ASEAN nations are considering regional payment systems based on local currencies.
Impediments to BRICS’ De-dollarisation Objectives
- China-India Trade Dependence on the US:
- Both are major exporters to the US, making a full transition difficult.
- Need to balance economic interests with geopolitical strategy.
- Diversity in Political and Economic Systems:
- Varying financial regulations hinder the creation of a unified monetary framework.
- Different priorities among BRICS members slow down implementation.
- Global Dominance of the Dollar:
- The US dollar still holds 58% of global forex reserves.
- Most international debt and commodity pricing (oil, metals, agriculture) remain dollar-based.
Evolving Landscape of Payment Systems and Financial Infrastructure
- China:
- Expanded the use of RMB in trade with Latin America and Africa.
- Invested in Belt and Road Initiative (BRI) projects, using RMB for settlements.
- India:
- Developing local currency trade settlement systems.
- Promoting Unified Payments Interface (UPI) for cross-border transactions.
- Russia, Brazil, and Indonesia:
- Strengthening their national digital payment systems.
- Developing interoperable fintech frameworks to facilitate non-dollar trade.
How Far Has De-dollarisation Progressed?
- Partial success in trade settlement diversification but dollar still dominates global finance.
- China’s RMB is gaining traction but limited to specific regional partners.
- SWIFT alternative systems are still in nascent stages; full de-dollarisation remains distant.
Pros and Cons of BRICS-led De-dollarisation
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Pros:
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- Reduced vulnerability to US sanctions.
- Greater financial autonomy for emerging economies.
- Lower transaction costs in cross-border trade.
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Cons:
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- Limited acceptance of alternative currencies eg at Present only 2% Of World Trade is carried by Chinese RMB.
- Risk of financial instability due to lack of uniformity in monetary policies.
- Political tensions with the US and Western allies.
Geopolitical Impact of De-dollarisation
- Challenges US financial hegemony, leading to potential trade wars and economic retaliation.
- Strengthens China’s geopolitical influence, particularly in Africa, Latin America, and Asia.
- Redefines global economic alliances, encouraging regional economic blocs.
- Potential for financial fragmentation, reducing global economic stability.
