Multilateral forums like the BRICS are playing a crucial role in promoting alternative payment systems and bypassing sanctions, thereby reducing reliance on the US dollar writes DHARMENDRA KUMAR
Throughout its development, the international system has remained anarchic, complex and characterized by unpredictability (Cudworth and Hobden 2010). However, state actions can be analyzed based on their policy decisions, which may be driven by geopolitical objectives. In the aftermath of the Cold War, the United States became a dominant player in global politics, and the U.S dollar was established as a means of exchange in the global financial system (Mastanduno 1997). The rise and fall of the U.S dollar have had a significant impact on the domestic market in terms of exchange rates and price mechanisms (Eichengreen 2011). The process of globalization has brought about the integration of the global economic system and political interests (Hall 2005). The admixture of these two logic was pronounced as geoeconomic method by Edward Luttwak. The fusion of political and economic interests has created a source of global concern, particularly for emerging economies because globalization went into favour of dominant players, particularly the West (Hirst and Thompson 1992). The global financial crisis that occurred between 2007-2008 sparked uncertainties about the continued predominance and global leadership of the U.S dollar. The crisis, which originated in the U.S, generated doubts about the dependability of the U.S leadership and the enduring usage of the dollar as the primary currency in the global financial system (Buller and James 2015). Despite the global shift towards a multipolar system, the dominance of the U.S is still evident in the global financial system.
However, when the U.S interests are threatened, it often imposes sanctions that can hinder the financial systems of other stakeholders (Morgan, Bapat, and Kobayashi 2014). Consequently, many countries have started searching for an alternative currency to use in trading instead of the U.S dollar. This de–dollarization process has geoeconomic implications, as countries prioritize their currencies over the dollar.
U.S Sanction and De–dollarisation
Over the past two decades, economic sanctions have become a prominent tool of global governance. Sanctions involve states or international organizations attempting to induce political change in target governments by limiting economic interactions, including trade, investment, finance, and travel. In the mid-twentieth century, only five countries were targeted by sanctions. However, by 2000, nearly fifty countries were affected (Bauman 2013). Today, sanctions are being widely used in response to various crises, such as Israeli war crimes, Iran’s alleged pursuit of nuclear weapons, and the conflict between Russia and Ukraine (Chengu 2019; Poghosyan 2018). Interestingly, scholars like Robert Gilpin and Krishner (1997), have highlighted the in-effectiveness of sanctions. However, the U.S sanctions have been known to cause domestic unrest among low-income populations. Recent news coverage has highlighted the U.S imposing sanctions on Iran, Russia, Afghanistan, China, and Venezuela. While this may appear to be a substantial number of countries facing the U.S sanctions, these are just five of the approximately 23 countries currently under the U.S sanctions worldwide (Hirsch 2023).
In short, economic sanctions could not be an effective tool in ensuring peace and stability across the globe, while imposition of it has negative economic consequences that states witnessed. On the other hand, currency warfare emerged as an alternative tool to deal with the derogatory effect of economic sanctions. The ongoing conflict between Ukraine and Russia has highlighted the use of sanctions and currency warfare as tools of foreign policy. The United States has imposed several rounds of sanctions on Russia in response to its annexation of Crimea and alleged interference in the 2016 the U.S Presidential election. These sanctions targeted individuals and companies deemed to have links to the Russian government or involved in activities that threaten the U.S national security (Psaledakis and Mohammed 2023). One of the ways Russia has responded to these sanctions is by de–dollarising its economy. The Russian Central Bank has been increasing its gold reserves and diversifying its foreign currency holdings, with a focus on ‘Euros’ and ‘Chinese Yuan’, in an effort to reduce its dependence on the U.S dollar. In addition, Russia has been actively promoting the use of its own currency, the ruble, in international trade. This currency warfare has had implications beyond the U.S-Russia relationship (Garver 2022). It has also impacted Ukraine, which is heavily reliant on the U.S dollar in its international trade. As a result of the conflict, Ukraine has been subject to the U.S and the EU sanctions targeting Russia, but these have also had a significant impact on Ukraine’s economy. The devaluation of the Ukrainian ‘Hryvnia’ against the US dollar has resulted in higher inflation and a decrease in purchasing power for Ukrainian citizens. Overall, the Ukraine–Russia conflict has highlighted the use of sanctions and currency warfare as tools of foreign policy. The U.S, Russia, and other countries are using these tools to pursue their interests, often at the expense of other countries caught in the middle. The implications of these actions will likely continue to be felt by countries around the world as the use of economic warfare becomes more prevalent in international relations.
Bypassing International Sanctions
Recently, there has been a growing trend of de–dollarisation in various multilateral organizations, including BRICS. This is in response to the perceived dominance of the U.S dollar and the potential risks associated with relying too heavily on it. The BRICS coalition, consisting of Brazil, Russia, India, China, and South Africa, is collaborating on a unified currency as a means of reducing reliance on the U.S dollar and challenging America’s supremacy (Gautam 2023). This initiative is taking place amidst Moscow and Beijing’s push for de–dollarisation in response to sanctions imposed by Western nations. Russia, China and India are also promoting ‘Yuan’ and ‘Rupees’ to legitimise global trade and commerce. Efforts have been made in both bilateral and multilateral capacities to address these challenges posed by the U.S sanctions. One of the potential opportunities that have emerged is the possibility of bypassing the use of the U.S dollar and promoting the use of alternative currencies (Saraswat 2023). This has the potential to lead to greater economic stability, control over inflation, and insulation of countries from the impact of global economic phenomena. By promoting the use of their currencies in bilateral and multilateral trade agreements, countries can reduce their dependence on the U.S. dollar and minimize the risk of economic disruption caused by the U.S sanctions. This also allows countries to have greater control over their monetary policy and the ability to stabilize their economies in times of crisis. In addition, bypassing the use of the U.S dollar can also help to insulate countries from global economic phenomena, such as currency fluctuations or inflation caused by factors outside of their control. Hence, de–dollarisation can help to promote greater economic stability and insulate countries from the negative impact of external economic shocks.
Overall, promoting the use of alternative currencies and reducing dependence on the U.S dollar is a potential strategy for countries to achieve greater economic stability and control over their monetary policy, while also mitigating the impact of the U.S sanctions and global economic phenomena.
(The author is a Research Scholar at Central University of South Bihar, India. Views are personal)