A BRICS threat to the dollar?
Russia’s war in Ukraine, Vladimir Putin and Xi Jinping’s recent meeting in Moscow, and China’s apparent success in brokering a diplomatic rapprochement between Iran and Saudi Arabia have fueled renewed chatter about threats to the global primacy of the United States – and particularly to that of the US dollar.
I encountered such commentary in the responses to my recent Global Policy article assessing the future of the BRICS (Brazil, Russia, India, China, and South Africa). The group is now considering an enlargement that would bring in countries like Iran and Saudi Arabia, raising questions about its criteria for membership and the role of its own New Development Bank. But would a larger and more influential BRICS-Plus really create risks to the dollar?
Perceived threats to the dollar’s role in the global financial system are nothing new; they have been a frequent occurrence since I began my career in the 1980s. Obviously, if there comes a time when the US ceases to be the world’s largest economy, the dollar’s status will be called into question. The same was true of pound sterling in the first half of the twentieth century (though the pound was not knocked off its global perch until well after the United Kingdom had been surpassed economically).
The eclipse of the dollar would not necessarily be a bad thing for the US, given all the added responsibilities that come with issuing the world’s main reserve currency. In a global economy where the US already is no longer as dominant as it once was, it is not optimal to have everyone else be so dependent on the American monetary system and the Federal Reserve’s domestically driven priorities. Other economies would much prefer that their own currencies, monetary policies, and trade patterns not be so influenced by those of the US.
But the fact that a US-excluding group of emerging powers has higher aspirations for itself does not necessarily mean anything for the US-centered financial system. After all, the BRICS and potential BRICS-Plus countries face many significant challenges of their own, and it is not clear what they hope to achieve together beyond issuing symbolic statements. Crucially, the group’s most important economies are China and India, bitter adversaries that rarely cooperate on anything. Until that changes, it is fanciful to think that the BRICS or even an expanded grouping could mount any serious challenge to the dollar.
I often despair at the lack of cooperation between China and India – the world’s two most populous countries by far. If they could overcome their historic animosity and develop an ambitious shared agenda for expanding trade and tackling issues like health threats and climate change, the idea of a BRICS-driven challenge to the financial and monetary status quo would become not just plausible but imminent.
In this spirit, I have long argued that China should make the first move by inviting India to help co-design elements of its signature Belt and Road Initiative. Realizing the BRI’s ambitious agenda of transnational infrastructure investments in cooperation with India would make a far more powerful and lasting contribution to Asia and beyond. Otherwise, the BRI will remain a narrowly Chinese initiative that exists primarily to impose Chinese preferences on others.
The potential addition of Saudi Arabia and Iran comes with similar caveats. Yes, bringing on two major oil producers (in addition to Russia) increases the likelihood of some oil being priced in currencies other than the dollar. But unless edging out the dollar is an explicit, genuinely shared, and deeply held goal, such invoicing changes will be exciting only to niche financial writers. I have lost count of the times I have heard arguments about why oil could soon be priced in a new currency. First it was going to be the Deutsche Mark, then the yen, then the euro. It’s still the dollar.
Finally, and most importantly, for any BRICS (or BRICS-Plus) member to pose a strategic challenge to the dollar, it would have to permit – indeed encourage – foreign and domestic savers and investors to decide for themselves when to buy or sell assets denominated in its currency. That means no capital controls of the kind that China has routinely deployed. Until the BRICS and potential BRICS-Plus countries can find a credible alternative to the dollar for their own savings, the greenback’s dominance will not really be in doubt.
Copyright: Project Syndicate
-- Contact us at [email protected]
-
Equip young people for the future Dr. Winnie Tang
In late February, the inaugural flight of an air taxi from Shenzhen Shekou Cruise Homeport to Zhuhai Jiuzhou Port took only 20 minutes with an estimated one-way ticket price of 200 to 300 yuan per
-
Are we raising a generation of leaders, or of followers? Brian YS Wong
The essence of education is defined not by the facts it imparts, but the potential knowledge it inspires students to individually pursue on their own. Put it this way – the ideal form of education
-
The urgent need for reforms to sex education in Hong Kong Sharon Chau
Nearly one in every four university students (23%) in Hong Kong has been sexually harassed, according to a 2019 report published by the Equal Opportunities Commission (EOC). A 2019 study found that
-
STEAM should be linked to real life Dr. Winnie Tang
In the 2017 Policy Address, STEM (science, technology, engineering and mathematics) education was proposed as one of the eight major directions to promote I&T development. Since then, funding has
-
Let trees speak for themselves Dr. Winnie Tang
I often say that smart cities start with smart planning, but smart planning presupposes adequate, systematic and up-to-date data. This is important not only for city administration, but also for tree