American dollar and the counter-idea of BRICS currency – Firstpost

Amidst consultancy firm JPMorgan’s predictions of a crash in the US economy and hence of the dollar as global reserve currency, there are claims to the Indian rupee taking that place. But there are more reports and claims that a proposed crypto-currency from an expanded BRICS could serve the purpose better, even as columnists tend to refer to the Chinese yen, but with reservations flowing from the West’s continued politico-strategic adversity towards the ‘Xi republic’.

The first question that needs to be asked is: Is the US dollar ready to collapse? During a political vacuum that persisted in Western Europe over the sudden collapse of the Soviet Union and the consequent end of the Cold War, the EU hurriedly floated the euro as the world’s alternate currency. It picked up certain momentum but once the dollar struck, the euro dwindled. It is still around, but is not perceived in the same league as the dollar, not certainly as an alternate global currency.

Then you have had Chinese yuan or renminbi. It also made arrival noises and has also picked up momentum through bilateral arrangements with individual countries, but it is nowhere near the dollar as the global alternative. The same goes with the Indian rupee. Shorn of hyper-patriotism, it should be acknowledged that the current trend of India striking rupee-trade deals with very many countries in the past couple of years does come with inherent limitations that would take time, effort, and energy to overcome.

Serious study

Perceptions that the world can do without the dollar, or that the Indian or Chinese currency, or a BRICS crypto, will replace it in due course, are fraught with possibilities and hurdles. When the former is well articulated, the latter seldom gets the serious study that it deserves. The simple and straight question is about when and how the ‘empire strikes back’. That is to say, what are the weapons in the US fiscal and monetary armoury for it to unleash? Not all of them would be predictable, and some of them could well be improvised on the spot as the situation evolves.

The bottom line is that, to spite the face, one should not bite the nose. None of the BRICS nations should compromise their currency values if there is an open or closed war on the US dollar. It applies to the BRICS currency, too. More importantly, their wars should not mess up the world around them to levels that many nations cannot recoup for years to come. Their curse will be on the initiators of the ‘currency war’, whenever joined.

Last year, BRICS, with much fanfare, admitted six nations. With the change of government, one of them, Argentina, which too was in the queue for a long time, has since rescinded the decision. Others, of course, are solid nations like Saudi Arabia, the UAE, and Iran. That US allies like Saudi Arabia want to trade in currencies other than the US, or also in non-dollar currencies, too, says a lot.

Russian initiative

Just now, the talk of a BRICS currency seems to be a Russian initiative, even if it has clearance from other founding members. Russian interlocutors are the ones who keep constantly talking about a dollar collapse and the need for a BRICS-like currency to be ready to fill the vacuum. But in the real world, do things work that way? Even if the dollar collapses as the reserve currency, can any other currency walk in just like that and take its position?

Incidentally, it is also Russia that is talking more about another 40 nations wanting to join the BRICS. More recently, Russian Foreign Minister Sergey Lavrov even charged the US with ‘interfering in the democratic elections in India’, something that Moscow has not said in a long, long time. The irony is that the US has not stopped complaining that Russia in the past and China at present seem to be ‘interfering’ in their presidential elections, including the upcoming one this year.

It looks like Russia in President Vladimir Putin’s new term seems to want to mount a political and diplomatic offensive on the US, where the question of a military engagement between the two does not look likely and the chances of Moscow gaining an upper hand do not seem bright. But if anyone has to talk about a BRICS currency and make it popular—more popular than the dollar—they have to begin at home.

Dollar as a political weapon

First and foremost, BRICS founding members like India and China are already promoting their own currencies for bilateral trade with nations. India has signed up with a host of nations to do bilateral business in their respective currencies. New Delhi only has to look around the rest of South Asia to extend the facility beyond Sri Lanka.

Along with the Maldives, Sri Lanka, for close to two decades, has also been seeking a South Asian currency. That dream ended with the non-functioning of SAARC, the common denominator. However, Sri Lanka did propose payment in Indian rupees for Iranian oil when New Delhi launched the process some years ago, when American sanctions prohibited the use of dollars.

While nations did not have much of a problem, other than political egos, with the use of the dollar as the international reserve currency initially, the American misuse and abuse of the facility as a political weapon over the years is now at the core of demands for an alternate currency. When the EU wanted to promote the euro in the 1990s, it was not over politics but over commercial opportunities. Not anymore. Now that Western European nations join the US-led bandwagon on sanctions against individual nations, the euro and their own individual currencies too come into political play.

The worst began happening when uninvolved third nations began getting hit and hurt. It was Iran when it came to oil supplies to nations like India. New Delhi could then afford to look at an alternate payment procedure and stop with it without protesting beyond a point. But when it came to Russian oil with the commencement of the Ukraine War in 2022, going beyond existing sanctions, nations like India and China got hit harder.

That’s when methods were devised for affected yet uninvolved third nations to break the dollar monotony. Russia also rose to the occasion to offer tempting price discounts. Better yet, Saudi Arabia refused to oblige the US to increase oil production and make Russian oil irrelevant to the international discourse. Both Saudi Arabia and the UAE, among other oil-producing nations, have stuck to their guns, whether or not it meant solidarity with Russia.

Historic adversity

Yet, issues remain. It is one thing to do business outside of the dollar regime, but another to think about and talk about an alternate reserve currency. First and foremost, there is twice as much dollars lying all around the world than all other currencies put together. There has been a lot of unsaid, undemonstrated influence on the global currency and price mechanisms for a long time.

Two, American political influence still counts. If the West is going to form a political cartel for fiscal and economic purposes, then the rest of the world will suffer, at least for a time. Of course, the West too would suffer even more, but in the interim, the rest of the world would take the hit unless they would sit down and talk it out.

Then, will come the question of who will represent the rest of the world in such negotiations: Russia and China, India and Iran, or whoever takes the bigger hit one way or the other? What then about the Global South? Does India really represent them anymore? After all, India claims to be moving from being the fifth-largest economy to being the third-largest one. Will the rest of the Global South continue to consider India as one of them, their representative voice, if not leader, anymore?

Then, there is a more specific question. When India and China are promoting their currencies and have tasted early successes, would they want to give up that advantage in favour of a BRICS currency? Even as Russia was talking about a BRICS currency, India did a bilateral on local currency trade with Nigeria recently.

Neither India nor China may stand to benefit, as Russia (alone) may benefit in the prevailing circumstances. Russia has parked a lot of its money in India after trading oil since the commencement of the Ukraine War. How much of it can it extinguish by selling weapons to India?

Going beyond economic and fiscal benefits that are visible and can be felt, using their own currencies for bilateral and international trade has given nations like India and China a taste of their political reach and outreach. Neither of them is going to give up that convenience easily, especially given their own historic adversity and a consequent bid to outsmart the other in the global market and political space.

That bilateral temptation is not going to go away until larger political issues, centred on the long-standing border dispute between the two Asian neighbours, are sorted out. It is not going to be easy. Even if Russia offers its good services to help out, given the political circumstances in India in particular, New Delhi would not be inclined to breach its long-held position on not involving third parties in resolving bilateral disputes (say, with China and Pakistan).

It is this that is going to be a major concern for all those trying to address the need for a BRICS currency, and they need to see beyond their respective noses if they have to reach somewhere, that too in the short and medium terms.

The writer is a Chennai-based Policy Analyst & Political Commentator. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.