The World is witnessing a paradigm shift in the global economic order led by BRICS while the US is witnessing its withering away from the unipolar moment. The contemporary world economic order is based on the dwindling US dollar hegemony, US colossal trade deficit, foreign currency exchange in US dollars, and its stability, with the International Monetary Fund (IMF) and World Bank its main pillars, which were the products of the post World War II Bretton woods system that collapsed in 1970. Over the past few years, the states have started losing confidence in the current economic order and looking towards emerging economies for a viable alternative global economic order, lowering their vulnerability and utter reliance on the US dollar, about. the flagrant use of dollar hegemony by the US to pursue its geopolitical interests, that is the weaponization of currency mainly through the imposition of sanctions to wreak havoc on its rivals by isolating them. Besides that, the struggling economies of the developing nations already hit by covid-pandemic are scuffling to keep the reserves of currency, i.e., the Dollar, which is comparatively of high value.
As per the reports, the dollar foreign currency exchange reserves have faced a heavy drop from 73% in 2001 to 58% by 2023, whereas China’s Yuan holds fifth position in the world market with 3 percent shares. Moreover, US authoritarian policies of increasing interest rates on the dollar led to. A high exchange rate and worsening the present\current dollar crisis. Also, in the wake of shifts in geopolitics and the emergence of new regional blocs significantly, Beijing’s appearance as the emerging hegemon on the face of global politics has immensely affected the contemporary economic order by making new alliances and its huge direct investments ranging from South Asia, the Middle East to South Africa.
Amid the emerging multipolar order, countries like China, India, Brazil, and Russia, as new contenders of world power, BRICS contributing to one-quarter of the global world economy and around 42 percent of the world population, aim to de-dollarize the global economy gradually. BRICS, which was initially based as an economic cooperation forum, has now posed itself as the representative of the global south. It has offered viable diplomatic and financial media.
The Shanghai-based New Development Bank of BRICS has posed as a rival financial institution to Bretton Wood’s International Monetary Fund (IMF) and the World Development Bank. As NDB has enunciated in April 2023, up to 30 percent of the total loans to the member states will be offered in their local currencies to help them break away from the longstanding US dollar dominance in the world market. Besides, it will provide a sigh of relief to the dwindling economies of especially the developing countries from the stringent dictating economic policies laid down by the IMF, which have, for most of the time, added to the misery of a layman. The middle eastern state, Egypt, has officially become the eighth NDB member, and Riyadh is soon to become its ninth member. At the same time, it is engaged in extensive talks with NDB, which is initially having BRICS states, Bangladesh and UAE as member states holding up their shares, marking the expansion of the new economic bloc, implying the growing reservation of the World for its continuing dependence on the dollarized world economy.
States across the globe are traversing the path of de-dollarization, relieving themselves of the burden of sustaining their foreign exchange currency reserves and maintaining enough dollar banks for trade-in. The liberal capitalist market by relying on local currency trade (LCT), which is gaining widespread acceptance, thus engaging in. bilateral trade by local currency exchange. LCT observed a hike after the onset of the Russian-Ukraine crisis whereby states have averted the sanctions imposed on Russia by resorting to work in local currencies like Rubel and Yuan and recourse to making payments in the third currency as renounced to be practiced by Dhaka and Moscow using Yuan, yet another blow to US dollar hegemony. Keeping up with the trend, the South Asian state, Pakistan, has also shown keen interest in. importing oil from Moscow in Rubel. As of 2023, Dhaka and Delhi have pronounced their disposition to engage in bilateral trade in Indian Rupee to minimize their dependence on the greenback. In addition, one of the major players in the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia, is planning to export oil to China in the Chinese Yuan.
The BRICS takes its limelight from Beijing, which is leading the alliance as China is challenging the US Hegemony whereby analysts are hinting towards cold war 2.0. According to the World Bank database, China contributed 38.6 percent to world economic growth from 2013-2021, more than G7 combined. On top of that, BRICS nations have started trading agreements in either Chinese or national currencies. Recently, in March, Brazil announced that its US $150 billion trade with China will now be carried on exchanging Yuan for Brazilian Reals and vice versa. Yuan has begun directing its influence in the Middle East with Iraq’s central bank proclamation in February that China would finance imports in Yuan to make up for the US dollar shortage in Iraqi local markets by converting the US dollars reserves to Yuan to make Iraq- China trade viable. Argentina has also expressed interest in trading in Yuan, abandoning the dollar. From all these developments, it can be ascertained that the Yuan is spreading its tentacles across the global market at a staggering yet steady pace. To strike the last nail in the coffin of US dollar hegemony, BRICS are planning to introduce their new common reserve currency based on the basket of BRICS currencies to end their dependence on the US dollar for international trade.
Despite all the developments, the World has a long way to go to experience an overhaul of the world economic order soon. The United States of America, with its more than 20 trillion-dollar economy, remains on the top, having the most dynamic world capital markets. Around 90 percent of the FX trade was carried in US dollars in 2022 alone, and up to 60 percent of the foreign exchange reserves have been in US dollars. The states which have embarked on this task, mainly BRICS, have to confront particular challenges as China seems reluctant to open its capital markets, which may lead to rapid capital outflows, and still, it will take much to usurp dollar hegemony like the introduction of new currency for international transactions, new economic institutions like IMF and World Bank, liquidity flows, sustainability of foreign exchange reserves, etc.