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Dollar dominance is under threat, former White House economist says | Countercurrents


De-dollarization could become a reality as a BRICS alternative to the dollar could have great prospects for success, a former White House adviser said.

A report from Business Insider — Dollar dominance would face a threat like no other from a BRICS currency, says former White House economist, April 26, 2023 — said:

Joseph Sullivan, who served as a staff economist on the White House Council of Economic Advisers during the Trump administration, wrote in Foreign Policy that a currency issued by Brazil, Russia, India, China and South Africa would pose a unique threat to the economy. the dominance of the dollar.

“It would be like a new union of emerging malcontents who, on the scale of GDP, now collectively outweigh not just the reigning hegemony, the United States, but the entire G-7 weight class combined,” he said. in a column published Monday.

The report said:

In recent months, the discourse on de-dollarization has blossomed. That’s because sanctions against Russia have exposed the danger of over-reliance on the dollar, coupled with increased efforts to strengthen other currencies, especially the Chinese yuan.

And Brazil’s president recently reminded the world of plans for a BRICS currency based on a basket of member currencies.

A fictional BRICS currency would have important advantages over existing alternatives, such as bilateral deals that still result in proceeds being parked in dollar assets and limited use with other countries, Sullivan said.

“The BRICS would also be poised to achieve a level of self-sufficiency in international trade that has eluded the world’s other currency unions,” he said. “Because a BRICS currency union – unlike any previous one – would not be between countries united by shared territorial boundaries, its members would likely be able to produce a wider range of goods than any existing monetary union.”

Non-member states would also have reason to use a BRICS currency because each member’s economy is big enough in their respective regions to make them desirable partners, Sullivan said.

In addition to eroding dollar dominance in trading, a BRICS currency could weaken the greenback’s status as a reserve currency.

BRICS governments could induce their own households and businesses to buy assets in the new currency with their savings and “effectively force and subsidize the market,” he added.

The Business Insider report said:

Sullivan also noted that it would not spell the end of dollar rule – which still accounts for 84.3% of cross-border transactions – but might contribute to a multipolar regime.

A drop in dollar strength could even be a good thing, he writes. Right now, the high price of the dollar is costing the US jobs and lowering exports.

Either way, the dollar’s reign probably won’t end overnight, but a [BRICS currency] would begin the slow erosion of its dominance,” he said.

Gold Leads Rebellion Against Dollar

Central banks around the world are moving away from the US dollar and turning their attention to gold as a safe haven, Rockefeller International chairman Ruchir Sharma said.

Prices for the commodity have risen 20% over the past six months, with demand not coming from “the usual suspects” such as large and small investors “looking to hedge against inflation and low real interest rates” but from “heavy buyers” such as central banks, Sharma wrote in the Financial Times on Sunday.

According to the investment expert, regulators are substantially reducing their holdings of dollars and are looking for a safe alternative. Central banks now account for a record 33% of monthly global gold demand and are ramping up more gold purchases than at any time since data began in 1950, Sharma added.

“The buying boom has helped push the price of gold to near-record levels and more than 50% higher than what models based on real interest rates would suggest,” he explained, adding that “it is clear that something new is driving gold prices .”

Sharma pointed out that nine of the top ten central bank buyers are in the “developing countries”, including Russia, India and China.

“Not coincidentally, these three countries are in talks with Brazil and South Africa about creating a new currency to challenge the dollar,” Sharma noted.

He attributed the hunt for the precious metal to increasing sanctions pressure exerted by the US and its allies, with as many as 30% of countries receiving international fines – up from 10% in the early 1990s.

“So the oldest and most traditional asset, gold, is now a vehicle of the central bank revolting against the dollar,” Sharma argued.

Some countries began looking for alternatives after seeing Russian assets abroad frozen and the country cut off from SWIFT’s global financial messaging system.

“Suddenly it was clear that any country could be a target,” Sharma wrote.

According to the expert, the US saw sanctions as a “free way to fight Russia,” but in reality, arming the dollar has come at a cost to Washington, as even allies like Thailand and the Philippines have begun to look for alternatives.

Yuan overtakes dollar in cross-border payments in China

Citing official data, a Reuters report on Wednesday said:

The Chinese yuan passed the US dollar last month to become the most widely used currency in China’s cross-border transactions.

Cross-border payments and receipts in yuan rose from $434.5 billion in February to a record $549.9 billion in March, according to calculations by the outlet, based on data from the State Administration of Foreign Exchange.

The Chinese currency was used in 48.4% of all cross-border transactions, reflecting a trend of dollar shifting, as well as Beijing’s efforts to promote the use of the yuan. The share of the dollar in China’s international settlements fell from 48.6% in February to 46.7% last month.

The volume of cross-border transactions includes both current and capital accounts, the outlet said. While the yuan’s share of global settlements is still relatively low, it has been steadily rising in recent years.

China’s efforts to move away from the dollar in international trade have gained momentum amid sweeping sanctions imposed by Western countries on Russia, a major global energy producer and exporter. Indian policymakers have also taken steps to move from the greenback to rubles and rupees in cross-border trade with Moscow.

Russia has ramped up the use of alternative currencies in transactions since last year. Russian President Vladimir Putin has suggested that the Chinese yuan should be used more widely, not only in trade with China, but also in Russia’s dealings with countries in Africa and Latin America. The most recent data from the Bank of Russia shows that the yuan has become a major player in Russia’s foreign trade.

Argentina drops dollar in trade with China

Another media report said:

Argentina will aim to pay for most of its monthly imports from China in yuan rather than US dollars, Argentina’s economy minister Sergio Massa announced on Wednesday. Buenos Aires and Beijing signed a currency swap agreement last year to counter the outflow of foreign currency from Argentina’s central bank.

China is currently Argentina’s second largest trading partner after Brazil, and the second largest destination for Argentine exports. According to the UN Database on International Trade, Argentina’s total imports from China in 2021 will be about $13.5 billion.

Massa said Buenos Aires will pay the equivalent of $1 billion in yuan this month for Chinese goods and services, and will pay $790 million in monthly yuan imports each month thereafter. The currency swap agreement, which was extended and finalized earlier this year, also allows Argentine exporters to settle in yuan or dollars to balance foreign exchange flows at the central bank.

During a visit to China earlier this month, Brazilian President Luiz Inacio Lula da Silva called on developing countries to move away from the US dollar in favor of their own currencies. India is also working to use its native currency or yuan to transact trade with China, while Russia has begun accepting payments for its exports from a number of countries in rubles and Chinese yuan.

The dollar’s share of global reserves fell 10 times faster last year than in the past two decades, the CEO of London-based asset management firm Eurizon, Stephen Jen, recently told Bloomberg. The process has gained momentum after other countries saw Russia’s US dollar and euro assets abroad frozen and Moscow cut off from the global financial messaging system SWIFT.

US Treasury Secretary Janet Yellen recently admitted that the dollar’s role as the world’s reserve currency could diminish if Washington uses its leverage over the global financial system to pursue its geopolitical goals through sanctions.

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