In the aftermath of the recently concluded 16th BRICS summit, a picture of Russian President Vladmir Putin holding a new banknote went viral. It consequently reignited the discourse about the launch of a new BRICS currency potentially challenging the hegemonic position of the US dollar in global trade. In reality, the banknote was only a symbolic note and the matter of a new BRICS currency was far from fruition and was not readily discussed at the Kazan summit.

To successfully reform the international financial architecture, the Kazan Declaration urged BRICS countries to utilise local currencies instead of the dollar in their trade dealings. The Kazan Declaration was embedded with concerns of BRICS members about the coercive and unilateral nature of sanctions imposed by the West and its impact on international trade. It additionally shed the spotlight on the need to “reform the current international financial architecture to meet the global financial challenges including global economic governance to make the international financial architecture more inclusive and just.”

With the recent discourse on de-dollarisation, it begs the question, how realistic is such a move?

Trump will not take kindly to de-dollarisation 

Following Donald Trump’s recent triumph over Democrat presidential nominee Kamala Harris in the recently concluded 2024 U.S. presidential elections, a lot of discourse has been focused on potential changes in the US foreign policy outlook towards the Russia-Ukraine war and the Middle East turmoil. But one realm which has not garnered much attention is that of de-dollarisation. Trump’s return to office poses greater challenges to de-dollarisation efforts. Trump perceives the dollar to be under siege and that succumbing to de-dollarisation will result in the ‘biggest war’ that the U.S. has ever lost. “You leave the dollar and you’re not doing business with the United States because we are going to put a 100 percent tariff on your goods,” he said.

De-Dollarisation in global discourse

The topic of de-dollarisation has increasingly emerged as a key talking point in global discourse. In 2022, when Russia’s international reserves were blocked by the US and Western Europe in the aftermath of the Russia-Ukraine conflict, it revived concerns of the need for greater financial autonomy and the need to reduce one’s reliance on the US dollar.

The move towards de-dollarisation has mainly been led by the US’ two greatest geopolitical rivals – Russia and China. While Russia-China trade turnover surpassed $200 billion and increased by 25 percent, about 90 percent of their bilateral trade was settled in rubles or yuan. Additionally, China has increasingly been dumping US treasury bonds while China’s gold reserves doubled over the span of five years and over 50 percent of Chinese payments utilised renminbi in comparison to the 42.8 percent in US dollars.

Despite recently revived efforts, the move towards de-dollarisation had actually begun much earlier. In 2011, former Chinese President Hu Jintao said that the international currency system dominated by the dollar is a product of the past.

There has been a continued effort of BRICS to conduct intra-BRICS trade in local currencies and reduce their vulnerabilities. This has been catalysed further by US imposed sanctions on Russia and China. Russian President Vladmir Putin, in an address to the BRICS Business Forum, put the spotlight on how the member states of BRICS were looking to create a new global reserve currency that could potentially act as an alternative to the IMF’s Special Drawing Right. He has repeatedly called for an alternative platform for international payments that would be immune to Western sanctions.

Russia especially, eagerly implemented plans to create a payment system and conduct trade utilising alternative currencies from 2018. But it was perceived more as a political statement rather than a realistic or credible plan of engaging with Western partners in the face of sanctions.

South Africa too has previously recognised the benefits of trading via the South African rand and highlighted the dangers of developing nations lacking autonomy and being a ‘price taker’ remaining susceptible to the external dynamics of currency shocks caused by the U.S. dollar. South Africa assimilated the renminbi into its foreign reserves and supported the BRICS vision to use local currencies in trade and protect one’s economic sovereignty. Brazil and Argentina too, completed a commercial deal with China in renminbi for the first time in 2023. The yuan additionally overtook the euro to become the second largest currency in Brazil’s foreign reserves.

Another country which has been fervently pushing for a BRICS currency is Iran which has joined BRICS as a member country in January 2024. While speaking at the BRICS Sherpa meeting in January 2024, Iran’s sherpa and deputy foreign minister for economic diplomacy said, “In the plans of 2024, I hope that these economic and financial pillars, especially banking and financial issues, payment systems, digital currency, common currency, exchanges with national currencies, etc., will speed up and become operational”.

Rhetoric and reality

There is no denying the point that the US dollar is the linchpin of the international financial market architecture. The dollar remains best suited to meet the primary criteria of being a store of value, unit of account and medium of exchange. It remains involved in almost sixty percent of global foreign exchange transactions and is regarded as the standard benchmark value even for transactions or trade between non-US dollar currency nations. Whereas, the renminbi makes up only 4.74 per cent of global payments.

Despite the BRICS’ de-dollarisation charge, the dependence (or over-dependence) of member states such as Brazil on the US dollar suggests that despite its recognition of the benefits of de-dollarisation, it cannot afford to steer away from the US dollar. Despite China overtaking the US as Brazil’s largest trading partner and only 17 percent of Brazil’s exports being US -bound, 90 percent of its export invoicing is denominated in dollars.

The fact remains that although BRICS nations are individually or collectively keen to create a reserve currency, the majority remain overdependent on the US dollar for day-to-today global trade.

Furthermore, the US will not remain mere bystanders to any rising threat to diminish the privilege of having its national currency act as the foremost global reserve currency. It will not be uncharacteristic of the US to do so as it had previously rejected IMF’s Special Drawing Rights from becoming a currency embedded with international status in addition to Keynes’ proposal for an international currency. Developing nations would like to refrain from facing the wrath of the US (in the shape of sanctions or otherwise) in the case of any formidable effort to displace the dollar. Trump’s return to office will arguably further intensify American resistance and the US will not hesitate in penalizing those looking to move away from the US dollar.

India’s cautious approach

India finds itself in a rather peculiar position as it maintains a strategic partnership with both Russia and the US. It recognised the threat of global currency volatility and in 2012 itself task forces set up by the Indian government suggested the utilisation of the rupee for trade with oil exporting nations and listed potential nations with which it could trade in rupees. A decade later, the Reserve Bank of India (RBI) established a framework to enable invoicing and payment of exports and imports in rupees and purchased a million barrels of crude oil from Abu Dhabi National Oil Company after signing a rupee settlement agreement with the UAE. In addition to bilateral trade with neighbours such as Nepal and Bhutan, a portion of India’s recent imports of Russian oil was facilitated by the rupee. Moreover, amidst growing sanctions on Russia and internationalisation of the renminbi, India is pushing for other trade opportunities in local currencies.

India perceives Russia and China’s push for de-dollarisation to a large extent as ideological and remains hesitant in rallying behind BRICS’ de-dollarisation efforts. With the recent expansion of BRICS, varying national interests of member states will further complicate coordination efforts on de-dollarisation. India and China may be cooperating mini-laterally under the gambit of South-South cooperation but China’s diplomatic unpredictability has compelled India to adopt a cautious approach to Beijing's initiatives to challenge the US dollar hegemony. Furthermore, over 85 percent of India’s imports are dependent on US dollar invoicing.

As RBI Governor Shaktikanta Das said, internationalisation of the rupee is not aimed at dethroning the US dollar and the latter shall remain the dominant currency in global trade. The US dollar remains the pillar of not only BRICS trade but also global trade with India’s External Affairs Minister S. Jaishankar categorically stating, “There is no idea of a BRICS currency.”

De-dollarisation not in near future

It is extremely unlikely that the US dollar would be dethroned as the world’s reserve currency anytime in the near future. A more realistic approach would be to gradually limit the involvement of the dollar in third-party transactions which don’t involve the US and prioritise providing alternatives and more options,  reducing the vulnerability of currency shocks due to overdependence on the US dollar.

China and Russia will continue to spearhead de-dollarisation efforts as they have mainly been on the receiving end of the weaponizing of the US dollar and increasing sanctions and freezing of reserves. The former is likely to utilise its expanding financial footprint in Africa, Latin America and Asia and its position as a favoured global trading partner to amplify its de-dollarisation agenda and internationalise the renminbi. However, in the coming days it would also be interesting to see the approach of the incoming Trump administration vis-à-vis de-dollarisation.

(Tridivesh Singh Maini is a faculty member at the Jindal School of International Affairs, O.P. Jindal Global University, Sonipat, India.  Abon Gooptu is a post-graduate student at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education, India. Views are personal. They can be contacted at abongooptu02@gmail.com )