Understanding What BRICS Really Wants: How De-Dollarization Creates An Opportunity to Win Back the Global South

Alex Zhang, Jan 14, 2025
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In late October 2024, nearly one thousand days after launching the illegal invasion of Ukraine, Russian President Vladimir Putin triumphantly welcomed thirty-six heads of state to the annual BRICS summit in Moscow in spite of the concerted attempts by America and its allies to cripple Russia’s economy through sanctions and diminish its military capabilities via aid to Ukraine [1]. BRICS—a cohort of predominantly populous and industrializing nations—is an acronym for Brazil, Russia, India, China, and South Africa, the cohort’s original members, and its states now represent nearly half of the global population and over a third of its economic output [2]. Russia’s influence in the organization and continued diplomatic clout present a critical warning to the U.S. and reveal the increasing limits of its power. 

 

While Mr. Putin’s flagrant violation of international law is the obvious threat to the U.S.-led rules-based international order, a potentially greater challenge lies in the astounding degree of complicity from other major states such as India and China, enabled by a shifting distribution of power. The continued support by outside actors through fossil fuel imports and dual-use technology exports has enabled Russia to keep its economy afloat in the face of punishing sanctions and reflects the growing economic power of countries outside the American sphere of influence. The creation of alternative power structures and institutions such as BRICS is indicative of this trend. Its member states are increasingly at odds with the rules-based order America established in the post-war decades though their concerns frequently differ in nature and intensity. Nowhere does this challenge from BRICS appear greater than in one of the most noticeable representations of American hegemony: the enduring dominance of the dollar in the global financial and economic system. De-dollarization has been a recurring topic of discussion at the fireside chats and speeches of previous summits, including this year’s Moscow gathering. While BRICS has so far failed to present a viable alternative to the dollar system, its recurring complaints over the status quo reflect both the legitimate concerns of emerging economies and an opportunity for the U.S. to win back the Global South.

 

The rationale for BRICS nations’ ambitions to supplant the dollar involves a complicated mix of geopolitical concerns over sanctions, economic concerns over the outsize influence of the US economy, and great-power competition from China and Russia. Building off of previous discussions on establishing a BRICS currency to rival the greenback, the group pushed for the creation of an alternative to the Society For Worldwide Interbank Telecommunication, the “world’s dominant financial messaging system” commonly known as SWIFT, at the latest Moscow summit [3]. The Kremlin has clear incentives stemming from Russia’s removal from SWIFT after its illegal invasion of Ukraine, but other states with friendlier ties to the West have also voiced support. Over the past few years, member heads of state including Presidents Lula da Silva of Brazil and Cyril Ramaphosa of South Africa have publicly backed de-dollarization efforts [4]. However, despite the rhetoric from BRICS, there are still many barriers preventing de-dollarization that appear nearly insurmountable in the near future.  

 

Bolstered by decades of reputational and structural support, the dollar still accounts for a staggering 88 percent of foreign exchange transactions and 58 percent of foreign exchange reserves, according to the Atlantic Council’s Dollar Dominance Monitor [5]. The dollar’s reputation as the safe haven asset is backed up by the U.S. economy, the world’s largest for well over a century. America’s innovative and diversified industrial base is reinforced by its economic stability and outperformance of nearly all other developed markets, creating a reliable source of demand for dollars from domestic and foreign investors, especially in times of “geopolitical turmoil, even if unleashed by the United States” itself [6]. As of September 2024, foreign holdings of U.S. Treasuries have hit all-time highs for five consecutive months, with demand driven by global instability from inflation and the Fed’s fiscal tightening [7]. Access to the superior returns of U.S. equity markets is another major source of demand for dollars. U.S. stocks have outperformed global equities by over sixty-five percent since 2000, explaining their outsized “61% share of global market capitalization,” [8]. While BRICS depicts dollar dominance as something forced upon the world by Washington, this rhetoric is not reflective of reality. Access to the lucrative U.S. stock market is a significant factor in dollar demand, and it is the natural consequence of consistently superior returns, not coercion. 

 

Most importantly, the dollar alternatives presented by BRICS are thus far insufficient. A newly created BRICS currency for international trade would face the same difficulties of centralization as the euro, which saw its share of global reserves plummet in the wake of the European Debt Crisis of the 2010s [9]. Adopting the Chinese yuan is also unlikely due to the strict capital controls instituted by the CCP and Sino-Indian geopolitical tensions. While the yuan’s doubling of its share of international transactions since 2022 is impressive, the dollar’s share has also risen from 38.9 percent to 47.8 percent, largely at the expense of the euro [10].  BRICS itself is far from unified and it is unlikely Delhi and Brasilia are comfortable with replacing dollar supremacy with yuan supremacy. 

 

Meanwhile, the U.S. Dollar’s enduring strength is backed by an unrivaled degree of liquidity in its capital markets, its adherence to the rule of law, and sophisticated financial infrastructure such as SWIFT and various clearing banks for processing payments [11]. This sizable advantage renders any de-dollarization effort unfeasible in the near future. However, that does not mean BRICS’s initiatives are just empty rhetoric. Understanding the motivations pushing states towards adopting hostile positions against the U.S.-led order is critical if policymakers hope to shore up support from the Global South in countering Russian and Chinese aggression. While not all states share the latter nations’ animosity towards the rules-based order, they harbor legitimate concerns with the status quo. Examining how three key factors—sanctions, economic influence, and great power competition—influence the de-dollarization debate enables policymakers to craft solutions that successfully address developing nations’ concerns within a rules-based framework. 

 

The proliferation of sanctions by successive U.S. administrations over the past two decades has certainly exacerbated the motivations for de-dollarization efforts. What was once a targeted economic weapon has now been imposed in some form or another on over sixty percent of low-income states [12]. Moreover, Russia’s illegal invasion of Ukraine demonstrated how quickly the U.S. and its allies can weaponize the dollar to sequester adversaries from the global financial system. The imposition of harsh sanctions and the seizure of Russian assets have raised eyebrows in Beijing, whose slowing economy is still heavily reliant on trade with Europe and the U.S. Sanctions have not only cut off Russia’s access to nearly half its foreign reserves, they have created additional trade barriers as “countries trading in their own currencies rely on dollars to complete international transactions” due to their widespread acceptability as a medium of exchange [13]. 

 

Other nations are also concerned that the widespread use of the dollar in the global financial system could expose their economies to unpredictable risks from U.S. economic and political headwinds. The Federal Reserve’s decision to swiftly raise interest rates to two decade-highs diverted much-needed capital from emerging markets to the now higher returns from relatively risk-free U.S. treasuries, creating inflationary pressures and dollar shortages in many developing economies [14]. Heightened returns from U.S. treasuries make it more difficult for many developing nations to refinance the considerable debt burdens taken on during the 2010s era of ultra-low interest rates. An appreciating dollar also raises consumer prices in developing nations which often rely on the greenback for purchasing imports due to its aforementioned widespread acceptability. The last significant Fed tightening cycle in the 70s likewise contributed to a string of inflation and debt crises in Africa and Latin America [15]. The increasing polarization of the United States has also fueled questions about the government’s ability to service over 30 trillion dollars of debt, with both S&P and Fitch downgrading US treasuries after the 2023 partisan fight over the debt ceiling [16]. A divisive atmosphere creates larger and more frequent deviations in fiscal policy by increasing volatility in the dollar’s value. For example, President-elect Trump’s victory generated a strong dollar rally due to expectations that his legislative agenda would spur inflation and prompt the Fed to continue tightening policies, which boosted the dollar’s attractiveness [17]. 

 

Last but not least, efforts to supplant the dollar also represent aspects of old-fashioned great-power competition as Russia and China seek to carve out their spheres of influence from the U.S.-led order. The latter’s concerted efforts to establish alternative multilateral organizations, such as the Belt & Road Initiative (BRI) and Asian Infrastructure Investment Bank (AIIB), challenge U.S. interests in the Global South by creating alternative sources of capital and diplomatic support. The AIIB now boasts 110 members and has lent Yuan-denominated debt to Egypt with Kenya and Pakistan considering similar bond issuances [18]. For China, BRICS functions in a similar manner as a forum for advancing their favored international order. On the other hand, BRICS represents something very different for Delhi, which seeks to balance commitments to the Global South with deeper Western security cooperation. Due to the sheer linguistic, geographic, and political diversity in BRICS, it’s vital not to overstate the unity and shared interests of member states. Leveraging the internal divisions in BRICS is one of several strategies the U.S. can undertake to reassert American leadership. 

 

To counteract BRICS’ concerns and cement its advantageous position, the U.S. should adopt a four-part policy consisting of restraint in sanction policy, legislative prudence, strategic engagement with divergent interests within BRICS, and capital deployment in developing markets. First, it needs to focus on building multilateral consensus in developing effective sanctions. American collaboration with allies and major economies on the Russia sanctions stands in marked contrast to the arbitrarily implemented unilateral sanctions of the first Trump administration against Iran despite no evidence of the latter violating the JCPOA [19]. Like any effective medicine, overprescription can compromise efficacy. In adopting a restrained approach, the US can deploy sanctions when the stakes are highest. Second, the U.S. can shore up the credibility of the greenback by avoiding the protracted budgetary fights that have become all too common in the last few years. The maintenance of the U.S. system of checks and balances including Fed independence is crucial for upholding trust in the dollar-dominated system. 

 

Additionally, policymakers must avoid the mistake of treating BRICS as a unified group with identical goals. Yes, BRICS nations harbor dissatisfaction with the status quo in one way or another. However, that does not mean these concerns are shared to an equal intensity or with similar goals in mind. Correctly discerning the BRICS states whose grievances can be successfully accommodated within the existing international framework from states who seek to thoroughly alter it allows policymakers to exploit nascent divisions within the group. While Putin warmly welcomed fellow authoritarian Nicolas Maduro of Venezuela to the Moscow summit, Brazil eyed the potential accession of a regime that recently threatened to invade its South American neighbor, Guyana, with understandable apprehension [20]. Brazil, signaling its desire to position itself as a leader in Global South issues without alienating other nations, has pursued diversification in diplomatic engagement through its embrace of the G20, a more representative forum comprising the world’s largest economies including the U.S. and its major allies. When Brazil assumed the presidency of the group in 2024, President Lula da Silva’s foreign policy advisor described the G20 as “the closest thing that exists which can be used as a model for [global] governance,” [21]. The selection of the U.S. for the upcoming 2026 G20 presidency “over China’s objections” then provides an important opportunity to pursue goals shared with Brazil and the majority of Global South countries, such as sustainable development and energy security [22]. 

 

Furthermore, as noted previously, the two largest and most populous BRICS economies, India and China, harbor serious disagreements. Viewing the BRI as a Chinese “plan to dominate Asia” at India’s expense, Delhi has deepened both security and economic ties with the West and regional actors [23]. During its own G20 presidency in 2023, the world’s most populous state unveiled the India-Middle East-Europe Economic Corridor (IMEC) alongside the U.S., E.U., Saudi Arabia, United Arab Emirates, France, Germany, and Italy [24]. Seen as a rival to the BRI, U.S. support for the IMEC not only further intertwines Indian and American economic interests, it adds necessary redundancy to global supply chains. Houthi terrorist attacks in the Red Sea have significantly reduced shipping volume in the area and demonstrate how effortlessly strategic choke points can end up as significant vulnerabilities. The creation of alternative land routes, like the proposed IMEC Middle East-Europe rail network, alleviates current and future potential supply chain disruptions from volatile regions like the Persian Gulf and Red Sea. 

 

Lastly, and most importantly, the U.S. must leverage its economic and diplomatic clout to rebuild trust and engagement in the rules-based order and credibly commit to upholding a system that encourages development across the Global South. Developing nations are justified in their demands for more inclusive financing and a meaningful voice in international affairs and it is incumbent on American policymakers to accommodate their demands within the existing framework of international institutions. The incoming Trump administration should engage in a proactive win-win policy to compete with BRICS in the Global South. As mentioned previously, higher U.S. interest rates have severely restricted the flow of capital to fiscally-strained developing economies. Through re-invigorating institutions such as the Development Finance Corporation and mobilizing private investment, the U.S. and its allies can deploy capital in emerging markets “to strengthen the role of the dollar and U.S. leadership in international development finance,” [25]. Not only does this undercut BRICS’ key argument that the Global South languishes under dollar supremacy, but it also demonstrates that the US is a reliable alternative to Russian and Chinese multilateral initiatives, many of which come with strings attached. Advisors should appeal to the President-elect’s dealmaking and transactional tendencies. These policies are not just strategically useful, but will yield economic dividends as American corporations gain access to new overseas markets [26].

 

The erosion of the American economic position relative to the rest of the world is inevitable. However, that does not mean American decline is inevitable or likely. While the U.S. share of productivity will naturally diminish as the Global South catches up in economic development, that does not imply a diminution of the universal values that underpin the international order propagated by the U.S. and its allies. Nor does it spell an end to the shared interests of nations and private parties across the world involved with maintaining that system. The United States still enjoys a preponderance of wealth, natural resources, military capacity, and geopolitical power. Managed wisely, the U.S. is well equipped to retain dollar dominance and its preeminent international position. However, ignoring the concerns of aggrieved nations will only continue to sow discontent and lay the foundations for alternative power structures that may not be receptive to current international norms and institutions. By taking a holistic approach towards sanctions policy, promoting stability in domestic policy, and reaching out to the Global South and amenable BRICS members as co-equal partners in the fight for progress and development, the United States can protect dollar dominance and reinforce the stability of a rules-based order. 


Sources

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