The global economy will transition toward a bipolar reserve currency system in an effort to reduce reliance on the U.S. dollar, with BRICS likely to propose China's renminbi as an alternative, according to economist Nouriel "Dr. Doom" Roubini.
BRICS is a bloc of emerging economies that includes Brazil, Russia, India, China and South Africa. Two of its members, China and Brazil, have agreed to conduct trade exclusively using their respective currencies, while others are on track to do the same.
Roubini said he did not expect India's participation in the bloc as its "strategic rivalry" with China might prevent the country from joining forces with the rival. He reasoned that India might participate in the de-dollarization because it depends on China's ally, Russia, for its energy, food and fertilizer needs. However, Roubini suggested that this dependency could "change over time."
India is a prospective emerging market despite needing improvements in its fiscal policy. Roubini predicted that India and several other emerging economies would become dominant economic forces over the following decades, especially after implementing additional reforms. BRICS itself is projected to expand as several other countries, including Egypt, Argentina and Iran, have also expressed interest in joining.
“India’s potential growth runs 7 percent, maybe even higher with economic reforms.”
Nouriel Roubini, Economist and Professor Emeritus at Stern School of Business
In addition to BRICS, members of the Association of Southeast Asian Nations (ASEAN) have also agreed to use their local currencies to boost cross-border trade and investment in the region. ASEAN members believe that the use of local currencies would increase the region's economic resilience.
The economist had earlier warned about the possibility of a bipolar currency system in February. He maintained that tighter restrictions imposed by the Joe Biden administration on its adversaries, including financial sanctions, could prompt the rise of an alternative currency system in the coming decade.
U.S. dollar does not benefit BRICS countries
Russian parliament deputy chairman Alexander Babakov believes that the U.S. dollar, the global default trade currency, does not benefit BRICS countries' shared objectives. Instead, the use of the greenback would create an "unfair advantage" for the U.S.
He urged members of the BRICS alliance to explore the development of a new common trade currency. Babakov discussed the establishment of a new currency at the annual St. Petersburg International Economic Forum earlier this month.
"Our goal should be focused on writing new rules in the financial sphere in order to enable the use of an already common currency," Babakov said.
The West's economic sanctions on Russia have wiped out almost five percent of the country's gross domestic product, increasing the urgency for Russia to find an alternative to the dollar. Analysts explained it was because commercial banks in Russia had difficulty settling international transactions as a part of the sanction.
Russia has started to use stablecoins and planned to roll out a central bank digital currency (CBDC), which experts predict will facilitate cross-border payments. The country's central bank already began the pilot phase of the CBDC at the beginning of this month.
Some experts have voiced support for reduced reliance on the U.S. dollar in international trade. Ex-chief economist at Goldman Sachs Jim O'Neill said the dollar's role in the global economy had been "far too dominant," making the monetary stability of other nations dependent on it.
O'Neill discussed how the monetary tightening implemented by the Federal Reserves since last year had affected other economies. For instance, Chile saw a sharp decline in copper prices last year when the U.S. dollar rallied, causing a significant reduction in the country's GDP.