Iraq has recently joined the de-dollarisation movement, and this development, coupled with the Brics New Development Bank’s plans, is giving fresh impetus to efforts to replace the US dollar as a global reserve currency.
The Brics bank has officially announced a 3-year de-dollarisation plan following the inclusion of countries like the UAE, Saudi Arabia, Egypt, Argentina, Iran, and Ethiopia.
This plan aims to facilitate lending in local currencies among member nations, reducing the reliance on the US dollar for transactions.
Iraq’s De-dollarisation Measures:
Iraq’s central bank has declared its intention to prohibit cash withdrawals in dollars and use the greenback in transactions from January 1, 2024, adding to the global de-dollarisation efforts.
China and Russia Spearheading De-dollarisation:
China and Russia are taking the lead in reducing dependence on the US dollar.
China has encouraged Middle Eastern suppliers to accept the yuan instead of the dollar, while Russia has restricted “unfriendly” countries from settling trades in any currency other than the rouble.
India-UAE Agreement:
India recently signed a significant agreement with the UAE, allowing trade settlements in rupees instead of dollars.
This move aligns with India’s efforts to reduce transaction costs by eliminating the need for dollar conversions.
The two nations have also established a real-time payment link to facilitate cross-border money transfers and promote greater economic cooperation.
Several Brics members, including China, Brazil, and Saudi Arabia, have been adjusting their US Treasury holdings. They have reduced their holdings recently, indicating a shift away from the US dollar.
Challenges in Creating a New Currency:
Economists suggest that creating a new currency for Brics trade could be modeled after the IMF’s Special Drawing Rights (SDRs).
However, getting India on board with China may be challenging. Additionally, introducing a new currency could complicate transactions, as the US dollar’s simplicity is a significant advantage.
Trade Imbalances and Transaction Complications:
Two major challenges in developing a new currency for trade within the Brics bloc are trade imbalances and the introduction of complexity into transactions.
Some member countries have persistent deficits with their Brics partners, and using a new currency could introduce complications into transactions where the US dollar’s simplicity has been a key advantage.
The global shift from the US dollar is gaining traction, driven by various factors and geopolitical developments. However, the transition to alternative currencies or mechanisms has challenges and complexities.
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