Is the trend towards dedollarization exaggerated? Will BRICS go all the way? The Sino-Saudi tandem is leading the way. Bitcoin in ambush.
Dollar is still king
The dollar is the world’s leading reserve currency. It is also the most widely used currency for trade and other international transactions.
But this hegemony has been eroding since the start of the war in Ukraine. American sanctions against Moscow have a lot to do with it. In particular the “freezing” of 300 billion euros/dollars.
Since then, many countries have reduced their exposure to the greenback. Notably Saudi Arabia which is the cornerstone of the petrodollar system. Not a month goes by without a country distancing itself at least verbally from the dollar.
Demand from the United States’ two largest creditors – China and Japan – has become less reliable of late. We recently reported on the setbacks of US Treasury bond issues.
In the meantime, the supply has exploded. The U.S. Treasury has issued a net $2 trillion in new debt this year, a record. Not to mention the fact that the Fed is reselling the US debt purchased under the aegis of QE at the rate of $60 billion per month.
Continuing this dedollarization trend will not be painless for the United States. Reducing demand for the dollar will cause its value to fall and create inflationary pressures through increased import costs.
For now, the imperial currency retains its dominant position. It remains involved in 88% transactions on the foreign exchange (forex) market.
The dollar also represents 46% of SWIFT payments, compared to 23% for the euro and 3.7% for the yuan. However, these figures do not tell the whole story.
CIPS (China International Payments System) processed a volume of transactions representing 100,000 billion yuan (~$14 trillion), versus 150,000 billion dollars for SWIFT.
So, rather than 3.7%, the yuan’s share is actually closer to 13%. So much money that would otherwise have circulated in dollars before the launch of CIPS in 2015.
Central banks are shunning the dollar
If the dollar continues to oil trade, it is on the other hand clearly on the decline in terms of central bank reserves. The latter are made up of 58% dollars, compared to 65% six years ago.
Foreigners, including private investors and central banks, now hold about 30% of all outstanding U.S. government debt, up from about 43% a decade ago.
Some signs of dedollarization are also evident in oil markets. More and more sales of black gold are made in other currencies such as the yuan.
The explanation lies in the fact that Russia, the world’s leading energy exporter, obviously no longer accepts the dollar. Russian oil is now sold in the currency of countries perceived as friendly.
For example, some Indian refiners have started paying in dirhams for Russian oil purchased through Dubai-based traders. Others pay in yuan.
Saudi Arabia is also on deck. The central banks of the kingdom and the People’s Republic of China carried out this Monday a swap of foreign currency equivalent to 50 billion yuan (26 billion Saudi riyals).
In other words, purchases of Saudi oil in yuan are imminent. We are witnessing the twilight of the petrodollar.
For the J.P. Morganrapid dedollarization is not on the agenda. “The benefits of a ubiquitous currency are considerable, and the United States has a long history of having a global network of alliances and partnerships.”
Perhaps, but most analyzes show that fragmentation is growing by the day. Huge chunks are breaking away from the Western world. And the most important demographic and economic part of this fragmented structure is called BRICS+.
The BRICS are truly determined to get rid of the dollar as quickly as possible. And the return of Argentina to the fold of the empire following the election of Javier Milei will not reverse the trend.
BRIC+
With its 11 members (if Argentina does not leave), BRICS+ includes 47% of the world’s population, 32% of land, 37% of the world economy (at purchasing power parity), 38% of world industrial production and 25% of world trade. Crucially, BRICS+ also controls 45% of oil production.
Furthermore, the BRICS+ countries are regional hegemons collectively bringing together military power that surpasses that of NATO. Iran has also just unveiled hypersonic missiles for the first time, thus joining a very exclusive club alongside the Russians and the Chinese.
BRICS+ today represent the largest economic, demographic, productive, cultural and military power in the world.
Obviously, each country has its own model and its own vision of the world. The Prime Minister Modi for example, chose not to participate in the virtual BRICS summit aimed at discussing the situation in Gaza.
But the fact remains that the alliance of Chinese, Indian, Russian, Latin, African and Islamic civilizations makes it the strongest international organization in the multipolar world of the 21st century.
Opposite, the Western empire seems to want to hang on to pre-squares through wars by proxy. The American billionaire Ray Dalio now estimates the probability of a third world war at 50%…
And while Russia has completely stopped accepting the dollar, there are fears that other countries, starting with China, will do the same. Gold would then return to the center of trade, hence its recent wiggles around $2,000 per ounce.
Except that we should not forget bitcoin which will officially become twice as rare as gold next May. Not to mention the fact that it costs nothing to move from one end of the world to the other.
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