BRICS and the Decline of the Dollar: The End of an Economic Era?

Dollar BRICS
US dollar notes are photographed in Buenos Aires, on June 23, 2022. - Argentines do their accounts in dollars, traumatised by recurrent economic crises and tormented by the inflation that is eating away at their pockets and is projected to exceed 60% this year. (Photo by Luis ROBAYO / AFP) (Photo by LUIS ROBAYO/AFP via Getty Images)

IMPORTANT POINTS:

  • BRICS expansion: Incorporation of Saudi Arabia and six new nations, challenging the hegemony of the US dollar.
  • Saudi Arabia and the Petrodollar: Changes in oil transactions, opting for alternative currencies to the dollar, impacting its global status.
  • US Politics and Debt: Strategic use of the dollar in global sanctions and concerns about the growing national debt could drive the search for monetary alternatives.

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In a recent global economic landscape, BRICS, the bloc of countries that originally included Brazil, Russia, India, China and South Africa, has expanded its ranks, incorporating six new nations. 

Among the most notable of these new additions is Saudi Arabia, one of the world’s largest oil producers. According to former US Congressman Ron Paul, this development could be a precursor to significant challenges to the hegemony of the US dollar.

Saudi Arabia and the Petrodollar: A Crucial Alliance

Since the 1970s, the “petrodollar,” a term referring to profits made from oil exports paid for in U.S. dollars, has been a major reason behind the dollar’s strength as a reserve currency. Saudi Arabia, with a production of more than 10.8 million barrels per day, played a crucial role in accepting dollars in exchange for military protection from the United States.

However, times are changing. This year, Saudi Arabia reached an agreement with Brazil, allowing transactions in the Brazilian currency instead of the dollar for its oil purchases. If such agreements become widespread between Saudi Arabia and other BRICS members, the dollar could face significant competition as a global reserve currency.

The Dollar and its Strategic Use in Global Politics

The dominant role of the dollar has allowed the United States to use economic sanctions as a foreign policy tool. For example, in March 2022, Western sanctions were imposed that froze approximately $300 billion of Russian reserves and excluded Russian banks from the SWIFT international payment system. This financial “weapon,” although powerful, is not without repercussions.

Ron Paul argues that the strategic use of the dollar in the global political sphere is leading other countries to look for alternatives. “The rejection of the dollar is also being driven largely by resentment toward the ‘militarization’ of its reserve currency status,” he notes.

The Debt of the United States: A Shadow on the Horizon

Paul also highlights another concern: America’s growing debt. He claims that skyrocketing debt could be one of the reasons why various nations are looking to replace or find alternatives to the dollar.

The expansion of BRICS and possible changes to the petrodollar system suggest that the US dollar’s role in the global economy could be at an inflection point. However, it is essential to recognize that the shift towards a new economic world order will be a complex and protracted process. In the meantime, it will be essential to watch how the relationship between emerging economies, BRICS and the dollar evolves on the global stage.