Slowly but surely, the castles and cathedrals of the ‘almighty dollar’ are beginning to crumble. The share of the US dollar in global currency reserves has dropped from 73% in 2001 to 47% in 2022. This erosion of the dollar is accelerating, with last year’s drop of 8% indicating a ten-fold increase on the average annual pace. A mixture of denial and paranoia grips imperialist financial centres as the BRICS alliance of Brazil, Russia, India, China and South Africa attempt to organise themselves into a capitalist bloc to challenge the dollar’s hegemony. SAM McGILL reports.
The election of Luiz Inacio Lula da Silva in Brazil in October 2022 has reinvigorated the BRICS alliance. Now president of Brazil for the third time, Lula was a founding member of the alliance in 2009. In April 2023, during his state visit to China, Lula called for BRICS to trade in their own currencies and develop a digital currency for trade to circumvent the dollar. On his visit to the New Development Bank (NDB) in Shanghai he declared:
‘Every night I ask myself why all countries have to base their trade on the dollar…Why can’t we trade based on our own currencies?…Who was it that decided that the dollar was the currency after the disappearance of the gold standard? Who decided that our currencies were weak, that they didn’t have value in other countries? Why can’t a bank like that of the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries?’
The NDB was established in 2014 by BRICS and is set to challenge the US-dominated World Bank with capital of $50bn for investment and financing to its members. Significantly, in March the NDB elected Dilma Rousseff as its new president. A former president of Brazil, Rousseff is a leading economist and served as Lula’s chief of staff. In her first policy move, Rousseff declared the NDB will issue 30% of its loans in currencies of BRICS members, providing an alternative to the dollar. BRICS is now estimated to account for 32.1% of global GDP compared to the G7’s* 29.9%. Meanwhile 13 countries including Iran, Saudi Arabia, Algeria, Egypt, Indonesia and Argentina have formally applied to join BRICS whilst another six have expressed interest. March’s peace deal between Saudi Arabia and Iran, brokered by China and hosted by Oman, has proved crucial to this process. The foreign ministers of BRICS will meet in South Africa in June to discuss applications whilst a major summit in August is set to gather BRICS presidents alongside high-ranking officials of interested states.
The renminbi, rupee, rouble and gold rush
Amidst soaring inflation, a wave of banking collapses and a $940bn US balance of payments deficit (the highest since the 2008 financial crash), trade in alternative currencies is growing. Two thirds of Russian and Chinese trade is already settled with the Russian rouble and the Chinese renminbi (with its unit of account – the yuan). Russian President Putin has declared his support for ‘using yuan in transactions between the Russian Federation and its partners in Asia, Africa and Latin America’. During his visit to China, Lula declared bilateral trade will now be conducted in the Brazilian currency, the real, and the yuan. China is Brazil’s biggest trading partner. This March, the UAE began selling its gas to China in yuan through France’s Total Energies, a move that Saudi Arabia seeks to emulate. When visiting China in April, even France’s President Macron stated that Europe should reduce its dependence on the ‘extraterritoriality of the US dollar’.
It is not just renminbi-based trade that is growing. Russia and India are trading oil in rupees whilst Russia and Bolivia are settling some trade in bolivanos as Russia seeks to develop Bolivian lithium mining. Central banks are also shoring up their reserves of gold, further indicating waning confidence in the dollar. In 2022 the world’s central banks bought 150% more gold than they did the previous year. Turkey bought nearly 400 tonnes whilst China brought its total gold reserves above 2,000 tonnes for the first time. These banks seek to protect their assets from the machinations of western imperialism: in 2022 the US and Europe confiscated over $300bn of Russia’s foreign assets in retaliation for its invasion of Ukraine. The Bank of England is withholding more than $1.8bn of Venezuela’s gold reserves in its coffers, following the US’s lead in confiscating Venezuela’s most valuable overseas asset, the CITGO oil subsidiary, worth $8bn. Daylight robbery.
The dollar: weapon of mass exploitation
With the 1944 Bretton Woods conference, the dollar assumed the status of global reserve currency. Thanks to its huge gold reserves, the US promised to peg the dollar to gold at $35 an ounce if the rest of the world pegged their currencies to the dollar. By 1971, having waged devastating wars on Korea and Vietnam, the US faced huge deficits and declining gold reserves. In an attempt to stave off domestic crisis, US President Nixon decoupled the dollar from gold, making it a free-floating currency. Global economic instability ensued, exacerbated by the 1973 oil crisis when OPEC (Organisation of Petrol Exporting Countries), led by Saudi Arabia, refused to sell oil to the US after its support for Israel during the Yom Kippur war. However, by 1974 the US had struck a deal with Saudi Arabia, providing military aid and political support in return for Riyadh selling oil exclusively in dollars, depositing those dollars in US commercial banks and using these dollars to invest in US Treasury bonds. This heralded the era of the ‘petrodollar’, allowing US spending to balloon whilst requiring countries outside the soviet bloc to pay for oil in dollars. The insatiable global demand for dollars, essentially a licence to print money, gave the US what French finance minister Giscard D’Estaing coined ‘exorbitant privilege’. As the socialist political economist Radhika Desai has pointed out, dollar hegemony has systematically undervalued the currencies of poorer countries, cheapening their resources and labour. Exports, typically raw materials are sold cheaply for increasingly expensive dollar-denominated imports. The need for foreign direct investment in infrastructure, public services and technology propels a massive expansion of dollar-denominated debt with high interest rates. Every time the US federal reserve (central bank) raises interest rates to strengthen the dollar, the value of currencies of poorer countries fall and the cost of paying back the debt increases, driving nations deeper into the cycle of debt, agribusiness and extraction.
Suffocating under $44bn of dollar-denominated IMF debt, Argentina is a case in point. By May the Federal Reserve had raised interest rates to a 16 year high of over 5%. This has further devalued the Argentine peso, driven up inflation and means Argentina has to export more lithium, copper, beef, corn and soy to avoid default. More and more dollars are spent on debt repayment, hindering its ability to pay for imports. Recognising this, China launched a 130bn yuan ($7.2bn) currency swap with Argentina enabling trade with China using the yuan instead of the dollar. China is now Argentina’s second biggest trading partner after Brazil; the US has been relegated to third place. China has already been using this model with debt-stricken nations Pakistan, Sri Lanka and Laos.
Sanctions as war
39 countries, more than a quarter of the world’s population, live under US sanctions. Many are denied dollars and locked out of the US-controlled SWIFT financial transaction system. The SWIFT system is linked to over 11,000 financial institutions across 200 countries. It dominates international financial transactions, therefore nations barred from SWIFT face daily problems in securing credit, settling trade and accessing overseas assets. These sanctions have proven deadly. US/British sanctions on Iraq in the 1990s killed half a million Iraqi children due to lack of food and medicine, an average of 150 a day. By 2018 US sanctions on Venezuela had killed over 40,000 people due to the impact on healthcare. Sanctions on war-torn Syria, Afghanistan and Sudan have pushed up prices and hit the poorest the hardest. Developing digital currencies and alternatives to SWIFT is crucial to confronting this economic warfare.
Today, according to the IMF, more than half of the world’s central banks are either discussing or actively developing digital currencies to enable trade that circumvents correspondent banks, SWIFT or the dollar. Expansive US sanctions have forced their hand, even Janet Yellen, Secretary of the US Treasury admitted ‘There is a risk, when we use financial sanctions that are linked to the role of the dollar, that, over time, it could undermine the hegemony of the dollar’. Articulating these concerns, arch-Republican senator Marco Rubio fretted, ‘We won’t have to talk sanctions in five years, because there will be so many countries transacting in currencies other than the dollar, that we won’t have the ability to sanction them’.
Finance ministers and central bank governors of the Association of Southeast Asian Nations (ASEAN) seek to develop a cross-border digital payment system to enable the use of their own currencies for regional trade. Russia began to develop its alternative SPFS financial system before finally being kicked off SWIFT in 2022, whilst China’s CIPS cross-border interbank payment system is linked to over 1,200 financial institutions in more than 100 countries, including HSBC China, BNP Paribas and Standard Chartered. Banco Bocom recently became the first Latin American bank to sign up as a direct participant of CIPS. Similarly, Brazil and Argentina hit the headlines in January pledging to create the ‘Sur’, a new Latin American currency of account to facilitate regional trade without the dollar. This could build on the SUCRE digital currency created in 2010 by the progressive ALBA bloc (Bolivarian Alliance for the Latin Americas) under the leadership of Cuba’s Fidel Castro and Venezuela’s Hugo Chavez. The SUCRE is largely defunct after Ecuador, one of its main participants, cut ties with ALBA after the election of right-wing turncoat Lenin Moreno in 2017. Nevertheless, the project illustrated what is possible in the shadow of the US. With the election victories of progressive politicians across Latin America, regional integration initiatives like UNASUR (Union of South American Nations) and CELAC (Community of Latin American and Caribbean states) are being revived, resurrecting plans for a regional currency of account.
The dangers ahead
Despite the drop in currency reserves, the dollar is used in over a third of global trade and around half of global debt is dollar-denominated. The renminbi is still subject to currency controls, though its use outside of China has grown to $200bn, at present this is focused on bilateral trade agreements with China. The expansion of BRICS faces significant contradictions: The International Criminal Court demands South Africa arrest Putin if he attends August’s upcoming BRICS summit which it is hosting. South Africa is a signatory to the ICC. Historic tensions between Iran and Saudi Arabia will not disappear so easily. India and China continue to clash over the strategically important Galwayn valley/Ladakh region along the Himalayan border. India has just overtaken China as the world’s most populous country.
Meanwhile, the US makes up 40% of global military spending, maintaining around 800 military bases, many of them encircling China. NATO is a growing presence in Latin America. The US has 49 military bases and installations in the region stretching from Panama to Paraguay whilst Britain occupies Argentina’s Malvinas islands and Ascension Island in the Atlantic. The 2011 NATO bombing of Libya and assassination of Muammar Gaddafi were warnings. Libya was spearheading plans to unify African states and create a pan-African gold-based currency in order to sell oil. This was not palatable to imperialism.
The decline of the dollar will not happen overnight, it reflects a growing inter-imperialist rivalry between the US and China. It is a process loaded with the threat of instability and war.
* The Group of Seven (G7) is Britain, Canada, France, Germany, Italy, Japan and the United States
FIGHT RACISM! FIGHT IMPERIALISM! 294 June/July 2023
