The dollar is facing a growing challenge from BRICS nations due to the bloc's increasing size and influence over global trade, according to Joe Sullivan, a former White House economist.
In a recent Foreign Policy op-ed, Sullivan highlighted the growing fear that BRICS nations could create a currency to challenge the U.S. dollar's dominance in international trade.
The BRICS bank, also known as the New Development Bank (NDB), announced at its meeting in Shanghai on May 31, 2023, a three-year plan to ultimately end its reliance on the U.S. dollar. This de-dollarization initiative will lead to BRICS countries making payments for trade in local currencies instead of the U.S. dollar and limit the number of settlements in U.S. dollars.
Although BRICS officials have denied plans to create a rival currency, the bloc of emerging markets could threaten the U.S. dollar due to its growing influence, warned Sullivan.
BRICS recently invited Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates to join the bloc, expanding its name to BRICS+. The addition of Egypt, Ethiopia and Saudi Arabia could give BRICS+ influence over 12 percent of global trade, as these three countries surround the Suez Canal, a key waterway for the flow of goods to international markets.
Sullivan also noted that BRICS+ has a significant influence on commodities markets. Saudi Arabia, Iran and the United Arab Emirates are three of the world's leading exporters of fossil fuels, while Brazil, China and Russia are significant exporters of precious metals.
The addition of Saudi Arabia, in particular, could give BRICS+ a significant advantage. The Middle Eastern country owns over $100 billion in U.S. Treasury bonds, which has helped increase BRICS' total holdings in U.S. Treasuries to over $1 trillion.
"The BRICS+ nations do not need to wait until a shared trade currency meets the technical conditions typical of global reserve currency before they swing their newly enlarged economic wrecking ball at the dollar," said Sullivan.
"If BRICS+ demanded that you pay each member in its own national currency in order to trade with any of them, the dollar's role in the world economy would go down. There would not be a clear replacement for the dollar as a global reserve. A variety of currencies would gain in importance."
According to leading cryptocurrency media outlet Watcher Guru, the global financial sector could rapidly transform by 2026. Economic power could shift from the West to the East, with developing countries taking the lead. BRICS+ countries already control 30 percent of the global economy, which could skyrocket if they altogether abandon the dollar.
Potential of new petrodollar
Many traders in the U.S. have been wondering whether BRICS+ could end the era of petrodollars.
The concept of the petrodollar refers to the practice of trading oil in U.S. dollars. The term "petrodollar" grabbed international attention in the 1970s oil crisis, when there were gas lines and historic price spikes.
In 1974, Saudi Arabia agreed to use petrodollars to buy U.S. Treasury bonds. Since then, Saudi Arabia and other governments have used petrodollars to purchase U.S. military weapons and other goods.
Since Saudi Arabia is now part of BRICS+, analysts and economists are worried the country might accept settlements in other currencies.
Today, the U.S. dollar accounts for nearly 90 percent of all foreign exchange transactions, half of the global trade and three-fourths of Asia-Pacific trade. Most oil transactions are still conducted in dollars, generating billions of dollars in daily transactions. However, countries like China and Russia are already moving away from U.S. dollars.
China began using the yuan for most energy imports from Russia this year. India's largest refinery, Indian Oil Corp and two other Indian refineries also started paying in yuan for some of their Russian oil imports. China has also requested that Middle Eastern suppliers accept yuan instead of dollars for oil trades.