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A group of major emerging economies is working on ways around the dollar but faces an uphill battle in reducing its dominance.
Russian Foreign Minister Sergey Lavrov said on Monday that BRICS countries are developing a payments platform that could bypass the US dollar. TASS, National news agency.
The initiative was born out of a summit of BRICS countries in Johannesburg last year. The group, which includes the major powers Brazil, Russia, India, China and South Africa, Each country’s currency.
Lavrov said on Monday the platform would improve the international monetary system and allow countries to pay in their own currencies in mutual trade. Russia is keen to steer trading partners away from the dollar as it faces tough sanctions from the United States and its allies.
Details about the platform are scarce, including which countries could use it or when it might be rolled out.
Lavrov was speaking at a two-day meeting of BRICS foreign ministers, just days after Russia’s flagship event, the St. Petersburg International Economic Forum. Russian President Vladimir Putin He stepped up calls to phase out the use of the US dollar and other “harmful” currencies.
There could be more activity on this front when BRICS nations meet in Kazan, Russia, from October 22-24, according to Christopher Glanville, managing director of international political research at GlobalData TS Lombard.
Granville wrote in his May report that a new BRICS payments system could take the form of a digital currency system that would allow central banks to directly process transactions in local currencies.
Lavrov himself Digital currency-based payment system He spoke to local media in April.
“You can’t replace something with anything”
Countries around the world are diversifying their assets and US Dollar Dominance The concern is that if sanctions are imposed, China could be shut out of the global dollar-based financial system, just like Russia.
Resource-rich Russia has been using the ruble more in trade, with President Putin saying last week that it now accounts for 40 percent of Russia’s import and export trade.
However, the dollar is so deeply rooted and pervasive in the global financial system that Few people think it can be dethroned..
“There are real geoeconomic headwinds for the dollar,” wrote Jared Cohen, president of international affairs at Goldman Sachs. Foreign Policy on monday.
Cohen acknowledged “slight” moves toward dedollarization, but wrote that the world is nowhere near a tipping point where a concerted effort would be made to change the dollar-based international financial system.
“For those arguing for total dedollarization, the two most significant problems are that it is impossible to replace something with nothing, and that U.S. competitors currently have neither the ability nor the will to replace the dollar, even if their rhetoric sometimes suggests otherwise,” he writes.
Still, Cohen warned that the dollar’s dominance should not be taken for granted. He cited developments in the U.S., including fiscal brinkmanship and “unnecessary tariffs,” that could undermine confidence in the dollar.
On Monday, two US think tank analysts Financial Times that “American Dysfunction” Political and financial tensions are the real threat to dollar dominance.