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Sanctioned nations like Russia and Iran are seeking alternatives to using the dollar to settle transactions with trading partners. Oleg Burunov explains at Sputnik News (a Russian government funded media outlet):
The trend of cutting dependence on the US dollar and switching to national means of payment in international settlements is gaining steam across the globe.
US sanctions against Russia and other countries have put the dollar’s dominance at risk, as targeted nations are seeking out alternatives, Treasury Secretary Janet Yellen told an American news outlet on Sunday.
“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,” Yellen said.
So, which countries are poised to scrap the use of the US currency in trade transactions? Sputnik explores.
Russia
In a new sign of Russia’s push to ditch the dollar, Foreign Minister Sergey Lavrov said in a statement last week that the trend of abandoning the dollar for settlements in international trade is “irreversible.”
Lavrov added that the process of a number of countries, including Russia, “running away” from the dollar is already in place and that it “will certainly accelerate” in the immediate future.
According to the minister, the US has shot itself in the foot, managing the world economy by means of the dominant role of the dollar. Lavrov added that Washington slapping sanctions on Moscow over its special military operation in Ukraine has indicated the need for other countries to cut their dependence on the West.
This echoed previous remarks by President Vladimir Putin about the “inevitable process of de-dollarization,” which he said is currently taking place in Russia and necessitates the restructuring of the national economy as soon as possible.
The Russian Finance Ministry, in turn, has repeatedly called the dollar “toxic,” while head of Russia’s VTB bank Andrey Kostin described the US currency as Washington’s most powerful weapon, allowing it to “dominate and scare other countries.” Russia has no other choice but to “follow the path of de-dollarization,” according to him.
Brazil, China
In a separate development last week, Brazilian President Luiz Inacio Lula da Silva urged BRICS nations to come up with an alternative to replace the dollar in foreign trade. The BRICS countries include Brazil, Russia, India, China, and South Africa.
“Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries? Who decided that the dollar was the (trade) currency after the end of gold parity?” Lula said during a visit to the Shanghai-based New Development Bank.
At the same time, he admitted that ditching the dollar is “difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency.”
Lula spoke after Brazil clinched a deal with China to trade in their own currencies, in a bid to abandon the US dollar as an intermediary. The Brazilian Trade and Investment Promotion Agency said that the agreement will help “reduce costs and promote even greater bilateral trade and facilitate investment.”
Western media, in turn, reported at the time that the deal is expected “to enable China, the top rival to US economic hegemony, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly, exchanging yuan for reais and vice versa instead of going through the dollar.”
A state-run Chinese media outlet has, meanwhile, said that the country’s largest commercial bank, the Industrial and Commercial Bank of China (ICBC), has processed the first cross-border yuan settlement in Brazil at its local branch there, “marking another significant step in the yuan’s globalization.”
The transaction became the first of its kind since China’s Central Bank authorized the ICBC as a yuan clearing bank in Brazil in February.
Chinese experts were cited by the outlet as saying that “yuan settlements are expected to boost the regional economic and trade recovery in the post-COVID era and help companies to find a more reliable alternative to the US dollar as they seek safer cross-border trade and investment deals.”
Zhang Jieyu, assistant research fellow at the Department for Latin American and Caribbean Studies, China Institute of International Studies, told the outlet that the yuan settlement with Brazil “sends a clear message of the growing acceptance and influence of the Chinese currency globally which will serve as an example for more countries to follow.”
The outlet reported that “while the US dollar still dominates Brazil’s foreign exchange reserves, the yuan’s role, as a rising international reserve currency, has been highlighted lately.”
A recent survey report by the Central Bank of Brazil showed that as of the end of 2022, the proportion of the yuan in Brazil’s international exchange reserves had reached 5.37%, exceeding the proportion of the euro at 4.74%, which means that the yuan becomes the South American country’s second-largest reserve currency.
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