While the Russia-Ukraine War continues to splinter the international community as the West draws a proverbial line in the sand between the “good guys” and the “bad guys”, it’s no surprise that the world has begun to split into two camps in response to US unilateralism.
In February, the UN General Assembly voted on a resolution to condemn Russia’s invasion of Ukraine less than a week before the 1-year anniversary.
Although 141 nations condemned Russia, the results were essentially bifurcated between NATO, its allies, and subordinate states and BRICS (except Brazil) and several aspiring member states.
The West overwhelmingly voted in support of forcing an immediate Russian withdrawal, while China, India, South Africa, and 13 other African nations notably abstained. About a dozen countries were not in attendance, half of them being African.
The combined total of the countries that either abstained or voted against the resolution comprises more than two-thirds of the world’s population, roughly 5.6 billion people, according to U.N. and World Bank data.
As we emerge into a new world order of multipolarity where the U.S. no longer possesses absolute authority as the sole hegemon, the rest of the world is looking to top emerging economies like China, Russia, and India to pave the way forward.
Consequentially, not only are Beijing, Moscow, and New Delhi rejecting the USD as the global currency, but so are powerful Middle Eastern countries.
For now, let’s look at the breakdown of the recent actions each country has taken to begin the process of de-dollarization.
Due to the U.S. and China's ongoing trade struggle, as well as sanctions imposed on China's principal trading partners, the world's second-largest economy must take action to reduce its reliance on the dollar.
No loud proclamations have been made by Beijing on this issue, but the People's Bank of China has been methodically decreasing China's stake in US Treasury bonds. Currently the main foreign holder of American sovereign debt, China has lessened its part to the lowest amount since May 2017.
Rather than hastily disposing of the USD, the Chinese are attempting to globalize their own currency, the yuan.
The yuan was added to the IMF's currency basket which includes the dollar, yen, euro, and pound. To make the yuan stronger, China has made some strides, such as amassing gold reserves, introducing yuan-priced crude futures (petroyuan), and employing the currency in commerce with foreign partners.
China has set forth its Belt and Road Initiative, with the intent of introducing currency swap deals in nations that are part of the endeavor. Additionally, they are actively advocating for the Regional Comprehensive Economic Partnership (RCEP), a free-trade pact that encompasses countries in Southeast Asia.
Donald Trump pulled the plug on the Trans-Pacific Partnership (TPP) shortly after taking office, and the current trade pact being discussed could take its place. This agreement would involve 16 countries and a population of approximately 3.4 billion people, with a combined GDP of $49.5 trillion, which equals almost 40% of the world's GDP.
Vladimir Putin, the President of Russia, has asserted that the US is committing an enormous error strategically by diminishing trust in the dollar. Putin has never demanded that dollar transactions be curbed or the use of the US currency is prohibited.
However, at the beginning of this year, Russia's Minister of Finance, Anton Siluanov, expressed that the country had to abandon its stocks of US Treasuries in preference for more reliable investments, such as the Chinese yuan and other “friendly” currencies.
In an interview with Russia One Channel, Siluanov said,
“About one-third of settlements were then carried out in rubles, while now more than half, about 55%, are conducted in rubles and friendly currencies,” he said, adding that this figure will continue to grow.”
Because of the sanctions that have been added since 2014, the nation has implemented multiple strategies to de-dollarize its economy.
One of the strategies they have adopted is the development of a national payment system to replace SWIFT, Visa, and Mastercard, with BRICS-backed alternative SPFS as the US had threatened to impose more rigorous sanctions that would affect Russia's monetary system.
Thus far, the city of Moscow has succeeded in partially eradicating the US dollar from its exports, having signed currency-swap arrangements with numerous nations such as China, India, and Iran.
At the beginning of this year, New Delhi changed to paying in rubles for the Russian S-400 air-defense systems due to US economic restrictions against Moscow.
Furthermore, when Washington reinstated sanctions against Iran, India had to switch to the rupee in buying Iranian crude.
Later on, in December, India and the UAE reached a currency-swap agreement for increasing trade and investment without the need for a third currency.
Considering India's high purchasing power parity ranking of third in the world, these measures might significantly reduce the importance of the US dollar in international trade.
Due to the sanctions imposed by the U.S., Iran has been compelled to look for other methods of payment for their oil exports that don't involve the US dollar. An agreement was reached with India to settle oil payments in the Indian rupee.
In recent years, Iran is increasing its use of the Chinese yuan in international trade. Instead of the USD and Euro, Iran will use China’s Yuan in bilateral trade agreements between Iran and China to abandon the need for the USD.
China clearly has a vested diplomatic interest in Chinese-Iranian relations as they recently brokered a peace arrangement to re-establish formal relations between Riyadh and Tehran.
Additionally, a bartering agreement was struck with Iraq, and the two nations are considering using the Iraqi dinar for their mutual transactions in order to reduce their reliance on the US dollar in the face of banking issues related to the US sanctions.
In a move signaling an attempt to reduce reliance on the US dollar, Saudi Arabia has declared the allowance of trading in other currencies.
After a lengthy affiliation with the American dollar, Saudi Arabia's Minister of Finance, Mohammed Al-Jadaan, declared that the kingdom is open to trading in currencies apart from the U.S. dollar.
This follows Chinese President Xi Jinping's recommendation that the Gulf monarchs accept yuan for oil, as well as Riyadh representatives stating last March that they would ponder taking the Chinese money.
To assess the magnitude of the statements, one must look back to the days of 1971 when President Richard Nixon abolished the gold standard. Subsequently, oil costs rose sharply over the next three years. In 1973 and 1974, American authorities, including Treasury Secretary William Simon, visited Saudi Arabia's royal family.
In the past, the petro-dollar was created when Simon persuaded the Saudis to only accept U.S. dollars for their oil and to buy Treasury bonds. Subsequently, all the members of the Organization of the Petroleum Exporting Countries (OPEC) followed this lead.
This has been seen as a benefit to the U.S. and has been linked to numerous wars in which the U.S. has been engaged. However, recently, the role of the U.S. dollar as the world's main currency has been challenged.
At the China-GCC summit, President Xi Jinping of China encouraged Saudi Arabia to take yuan for barrels of oil. Furthermore, the nation declared in March that it was mulling over the prospect of accepting the Chinese currency for oil.
Saudi Arabia is vying for BRICS membership ostensibly indicating a pronounced rejection of US-NATO relations, thus forever upsetting the balance of power.
In the not-so-distant future, BRICS countries will no longer be regarded as “emerging economies” but rather leaders in the international community setting global economic standards.