BRICS currency: The ongoing Russia-Ukraine war and the autocratic fiscal cuts by the US Federal Reserve has led to a great uncertainty in the currency exchange market. With these lopsided decisions, the US dollar is getting inorganically stronger, which is a worrying signal for all the other currencies and economies around the world. This has led to an unprecedented demand to do away with the hegemony of the US dollar. Several countries are trying to find a better alternative payment system that will be more stable and better represents the non-western world.
A ‘strong BRICS’ all set to annihilate the hegemony of Petrodollar
BRICS is the powerful association of five major emerging economies namely Brazil, Russia, India, China and South Africa. The group represents 41 per cent of the global population, 24 per cent of the global GDP and around 16 per cent of the global trade. All the member nations have been holding annual meetings since its formation (2009/10). This year the 14th annual meeting of BRICS nations was held virtually in China.
In this decisive meeting, Russian President Vladimir Putin put forth a revolutionary idea. He announced that BRICS nations are planning to issue a “new global reserve currency” dubbed as BRICS currency. So, if the decision goes as planned, it will be a major jolt to the US dollar. As the launch and trade in BRICS currency can quickly erode the lion’s share of global trade taking place in US dollar.
Furthermore, the BRICS group is slated to expand and include many more emerging economies of the world. Currently, Argentina has formally applied for BRICS membership. But what may come as a shocker to the US is that its long-term ally/partner Saudi Arabia too is eyeing a membership of the BRICS group.
Reportedly, South African President Cyril Ramaphosa has informed that Saudi Arabia wants to become a member of the BRICS-expansion group. Notably, this one move alone by Saudi Arabia can put a grinding halt to the hegemony of the US dollar. If the extended BRICS group having Saudi in it starts trading in BRICS currency, it may completely obliterate the dominance of petrodollar in global trade.
Why is Saudi’s distancing with the US significant enough to completely dent US petrodollar?
To analyse the significance of the Saudi’s changed stance we have to analyse the journey of the US dollar and how it gained this much dominance in global trade.
It all starts from the 1940s when Europe was at its worst during World War II. Amid grave uncertainties, 44 allies adopted the Bretton Woods System. It was decided that all the nations will adjust their currencies to the US dollar. This was done in accordance with the requirements of the new monetary system. This pegged the dollar to gold with a belief that this standardisation will reduce economic instability worldwide.
However, in the early 1970s, the US failure in the Vietnam war changed the smooth course of the US dollar. The US was facing not just the balance of payments crisis but it faced loss of credibility among its allies, partners and other nations. With its back to the wall, the US administration led by President Richard Nixon negotiated a historic deal with the OPEC countries.
In the mid-1970s, in exchange for oil trade only in dollars it agreed to provide US military assistance to the Gulf nations. This resulted in the birth of Petrodollar. The US got a great assistance from Saudi monarchs in this as Saudi has been dictating terms to the OPEC nations. Evidently, Saudi Arabia is the largest exporter of crude oil in the world including to the USA. It accounts for 17.2% of all exports. Through Saudi, the US indirectly controlled the dollar-pegged global oil prices.
But of late, the rifts have been widening between the White House and Saudi monarchy. Ever since the Biden administration took oath, it has been needling the red lines set by the Saudi Monarchy. Evidently, Riyadh was displeased at Biden administrations’ decision to stop aiding and supporting Saudi Arabia’s military campaign in Yemen. The Saudi regime has been facing relentless Houthi attacks on Saudi oil infrastructure. Additionally, Biden has been cosying up with Saudi’s arch rival Iran to revive the JCPOA nuclear deal.
However, the growing concerns are not one way round. The Biden administration recently accused OPEC+ of siding with Russia and significantly cutting down the oil supply to the world. In retaliation, democratic lawmakers introduced a legislation that demands the withdrawal of essential US military hardware camped in Saudi Arabia and the United Arab Emirates (UAE).
Currently, around 5,000 troops are stationed in Saudi Arabia and the United Arab Emirates apart from a variety of weapons.
That is why, Saudi Arabia has been showing keen interest to join the soon to be expanded group of BRICS nations. Thus, the trade of the extended-BRICS group in BRICS currency will be the major jolt the petrodollar had ever suffered since its inception in the mid-1970s. The petrodollar which came as a result of a deal between the Saudi-led OPEC group and the US may end up being defeated by the same pill. That is, expanded BRICS, Saudi-led OPEC trading in BRICS currency for oil and other global trade will be the end of petrodollar.
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