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Feeling the heat of de-dollarization 

Col (r) Ikram Ullah Khan 

In a remarkable development, Russia, a top oil-producing member of BRICS, has taken a bold step to ditch the US dollar and switch to accepting local currency for cross-border transactions, thus making the US and its Western allies feel the heat of it. 

Russia has led the de-dollarization campaign from the front because it wants to evade the US economic sanctions which were imposed on it immediately after Russia-Ukraine war. The sanctions had a crippling effect on Russian economy. Nonetheless, Russia had long been contemplating some strategy to counter the American exploitative move, and ultimately, came out with a measure in the shape of de-dollarization campaign after taking the BRICS members into confidence. 

Taking a bold step to sideline the US dollar, Russia’s leading oil-producing company ‘Gazprom Neft’ has announced that the company has completely stopped accepting the US dollar as an instrument of payment. The company has ditched the US dollar and has started accepting local currencies for payment. The move seems to be a bold step towards de-dollarization and is likely to deliver a mortal blow on the US economy in the months and years to come if succeeds. This is the first oil-producing firm to take the bold initiative to completely switch from US dollar to local currencies in 2023. 

The development comes on the heels of the de-dollarization campaign initiated by BRICS alliance. It may be recalled that a decision to launch a de-dollarization campaign was taken in the summit meeting of BRICS recently held in Johannesburg, the capital of one of the provinces of South Africa. Two proposals were floated by China and Russian jointly either to introduce a separate currency to be named as ‘BRICS currency’ or to trade in local currencies, thus completely abandoning the US dollar. The first proposal couldn’t have a smooth sailing due to stiff opposition from India and Brazil, both being pro-US countries, but the second proposal was agreed to unanimously. 

Moreover, it has come as a bolt from the blue for the US to see its most-trusted strategic ally India joining the chorus and singing in unison with other members of BRICS, and settling oil trade with the UAE using the Indian Rupee and not the US dollar. To add insult to injury, Saudi Arabia has also confirmed recently that it’s also favourably inclined to accepting local currencies for oil trade across the world. Other members of BRICS including those who are going to formally join the alliance in January 2024, would follow suit for certain. Another major oil-producing country Iran, being the worst victim of the US sanctions and its exploitative tactics, is more than willing to cooperate in this regard.  

So, all the four major oil-producing members of BRICS with 38% global crude oil producing share and approximately 16% of world’s natural gas production, are ready to support the de-dollarization strategy and trade in local currency, thereby ringing an alarm bell for the US economy. Moreover, Oil Producing and Exporting Countries (OPEC) own roughly 80% of global crude oil reserves. If this happens, which is likely to happen, it would be a staggering blow for the US economy. The US economy will be severely impacted if all the BRICS members including those who have shown their willingness to join the alliance in January 2024, stop using the US dollars for trade. At least ten US sectors will be impacted if BRICS either trades in local currency or launches new currency, although there is a remote possibility for the latter given the internal dissention among BRICS members over the proposal. 

The sectors that would be adversely affected by the de-dollarization move as I have already mentioned in my previous write-up, include international trade and investment, global financial system, energy and commodity market, banking and finance, travel and tourism, capital markets, consumer goods and retail, information technology, production and consumption. All these sectors are directly dependent on US dollar and operate globally in USD. Thus, de-dollarization would negatively impact the US economy which has hitherto managed to maintain its position as world’s number 1 economy. 

While predicting the future of US economy, Brian Moynihan, the CEO of the Bank of America (BoA), an American multinational investment bank serving approximately 11% of all American Bank deposits and the second-largest banking institution in the US, says, “We won’t have a recession, and that consumer spending has remained strong despite headwinds in the US economy. However, the US economy is still far from safe and needs more to do to escape turbulence”.

According to economic experts, the US dollar will remain under constant threat from BRICS whose objective is to to do away with its status as the global reserve currency. They are of the view that if BRICS remains firm in its resolve, and also if ever-surging inflation affecting the US economy is not controlled and brought down to 2% by the US, it may face insurmountable difficulties to grapple with the constant threat posed by BRICS, and chances of a dip in US economy would remain fairly high. 

The bottom line is: Notwithstanding the well-orchestrated attempt by BRICS alliance to neutralize the US economy, it knows that it’s not that easy to pull the rug out from under the feet of the US, and that the US is capable of successfully countering any step taken by them in this regard and that it would never let China-led alliance divest itself of the unrivalled position it has been enjoying for the last more than three decades.

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