Col (r) Ikram Ullah Khan
With de-dollarization campaign picking up momentum, the desperation of the US is quite understandable. Slowly and gradually, the spectre of de-dollarization is making its frightful appearance with full might. The US has a painful realization that the inevitable is destined to happen sooner or later and that there is no escape from it.
The crusade launched against the US dollar’s monopoly by BRICS, an economic alliance of 9 countries spearheaded by China and Russia with more countries in the pipeline to join it, was a writing on the wall given the indiscriminate economic sanctions imposed at will on Russia, Iran and a few other countries with the proverbial Sword of Damocles hanging over their heads. The alliance is intent on ditching the US dollar and is mulling over two strategic options to achieve its objective.
The first and the foremost option is launching its own gold-backed trading currency. If it happens, it will break the greenback’s (dollar) hold on global finance and strike a mortal blow on its dominance, thus ending the US more than hundred years monopoly over world’s economy and rolling it down the economic stairs with a meteoric speed. However, this option has a slim chance of having a smooth sailing given the possible resistance by some pro-US countries like India and Brazil who have shown their implied reluctance to subscribe to the proposal.
The second option, i.e. trade in multiple currency, completely abandoning the US dollar seems to be a more viable option and is acceptable to all the member countries and even to those countries who are not part of the alliance but have expressed their intention to join the alliance in the near future. This option is already being used by quite a few countries including Russia, China, Iran and the UAE, etc.
The US desperation is quite manifest from the recent election rally held in Wisconsin, where the US presidential candidate Donald Trump while addressing the rally announced to impose 100% tariffs on imports from any country that moves away from the US dollar. Trump made this announcement in front of the charged crowd in an attempt to play to the gallery without having a scant realization that this kind of tactics to protect dollar would be catastrophic for US economy and painful for American households as the prices of many consumer goods would be doubled, thus making it hard for an average American to make an honourable living. Such kind of political rhetoric sounds good for public consumption only, and the US public is intelligent enough to understand such impulsive outpourings.
It may be mentioned here that BRICS summit meeting is scheduled on October 22-24 this year in Kazan, Russia, and Donald Trump has made his announcement of imposing 100% tariffs on all imported goods coming from all those countries switching from US dollar to local currencies just a few weeks before the summit in a bid to neutralize the impact of this summit and block the possible announcement of launching a gold-backed BRICS trading currency. However, in the absence of detailed information coming from the horse’s mouth, some analysts expect the summit meeting may announce a multicurrency payment platform, thus ditching the US dollar.
It would be a historic event if an alternative to the current dollar system is announced. It would mark the first strategic step taken to move past the famous 1944 Bretton Woods Agreement (BWA) that established the post world war global financial system. Under this agreement, the US dollar was tied to the price of gold while all other currencies were pegged to the dollar. This agreement gave a dominant status to the US currency, thus placing all other currencies subservient to it. This gave the US dollar system almost total control over the global financial system. This centralized system enabled the US to ban any person, business or country from making an entry into the global financial system.
It may be interesting to know that in 2016, BRICS countries (an economic alliance of third world countries) overtook the G7 (an economic group of world’s wealthiest countries) in combined GDP. BRICS now accounts for 35%of world’s GDP, compared to G7’s 30%. For the US, this presents a nightmarish economic scenario and sets an alarm bell ringing for the US downslide.
As for designing the BRICS currency, several proposals are under consideration. One of the proposals under active consideration is a monetary unit similar to the old European Currency Unit (ECU) that was later on replaced by Euro. However, final decision is yet to be taken in this regard and BRICS members seem in no hurry about it.
Given the difficulties encountered by BRICS countries to launch common currency in the immediate future, China is working with several other countries including the UAE, Russia, Thailand, Iran, Egypt and India to introduce financial transactions in multiple currencies. In case this move succeeds, it will make a huge dent in the US economy.
BRICS is proceeding towards it’s goal slowly but surely. It has plenty of reasons to tread carefully as any decision taken in a hurry with regard to a roadmap for a new monetary system could destabilize global financial markets. BRICS wouldn’t like to be stigmatized with triggering a financial crisis. But one thing is decided that BRICS is determined to dethrone the US dollar, come what may. BRICS has decided to tie its proposed currency to gold price. In this regard, BRICS members have made an unprecedented accumulation of gold and continue buying gold at record levels that could help them launch their currency with an impregnable confidence.
The de-dollarization may take a few more years to end the US dollar’s monopoly, but its ultimate occurrence is a foregone conclusion and is as certain as death and taxes.
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