Qamar Bashir<\/p>\n
Efforts to challenge the US dollar\u2019s global dominance have historically been hindered by disparities among nations in economic strength, foreign reserves, human resource development, infrastructure, productivity, innovation, and wealth creation. However, recent advancements have enabled international and regional organizations to make significant progress in reducing reliance on the dollar for investment, trade, and reserves.
\nEmerging economies have achieved substantial growth, enhancing their economic resilience and reducing dependence on the US dollar. For instance, China\u2019s GDP has grown significantly, positioning it as a major global economic player. Countries are developing financial infrastructures that facilitate transactions in local currencies. The BRICS nations (Brazil, Russia, India, China, and South Africa) are exploring the creation of a new reserve currency to challenge the dollar\u2019s dominance. Nations are entering agreements to conduct trade in their own currencies.
\nFor example, Russia and China have increased the use of the ruble and yuan in bilateral trade, reducing reliance on the dollar. The development of digital currencies and blockchain technology offers alternatives to traditional dollar-based transactions. China\u2019s digital yuan is a notable example, aiming to facilitate international trade without the dollar. These initiatives reflect a strategic move by various countries and blocs to enhance economic sovereignty and reduce exposure to dollar-centric financial systems.
\nThe notable example the BRICS nations \u2013 Brazil, Russia, India, China, and South Africa \u2013 have increasingly utilized local currencies in their intra-group trade. In 2012, BRICS countries signed agreements to promote trade in local currencies, aiming to replace the US dollar as the primary unit of trade among them. Between 2017 and 2022, intra-BRICS trade increased by 56 percent, reaching $614.8 billion in 2022. At the 2023 BRICS Summit, member countries agreed to promote the accelerated use of local currencies in cross-border payments. Institutional mechanisms like the BRICS Interbank Cooperation Mechanism and BRICS Pay have been developed to facilitate these transactions. The trade among BRICS nations and local currency settlements rose to 85 percent, up from 26 percent two years prior.
\nThe Shanghai Cooperation Organisation (SCO) has been actively promoting the use of national currencies in trade and investment among its member states. In September 2022, during the Samarkand Summit, the SCO Heads of State Council approved a roadmap aimed at gradually increasing the share of national currencies in mutual settlements.
\nFor instance, on February 21, 2023, representatives from finance ministries, central banks, and financial organizations of member states met to share experiences and discuss the development of payment and clearing systems for mutual trade in national currencies. For example, over 70 percent of commercial transactions between China and Russia are conducted in the Russian Ruble and the Chinese Yuan. In the European Union (EU), trade and investment are dominated by the euro followed by the US dollar, with the euro being the primary currency for exports (49 percent) and the dollar leading in imports (50 percent) as of 2022. The EU\u2019s foreign direct investment (FDI) inflows increased by $12.3 billion in August 2024, with inward FDI stock valued at approximately $3 trillion and outward stock at $4.5 trillion in 2022. Additionally, foreign portfolio investments rose by $281.4 billion in June 2024. These figures underscore the euro\u2019s prominence in EU exports and investments.
\nTrade and investment volumes between Russia, its allies, and Eastern countries have significantly shifted toward local currencies in recent years. In 2023, Russia\u2019s total trade volume reached approximately $844 billion, with over 80 percent of its trade with China settled in Rubles and Yuan. A Eastern Europe and Central Asia primarily use national currencies for regional trade, though the US dollar and Euro remain prevalent for international transactions. Investment flows, including Russia\u2019s $38 billion inward FDI and $64 billion outward FDI in 2021, are also increasingly shifting to local currencies, reflecting a broader strategy to enhance regional economic resilience and sovereignty. African nations are actively working to reduce their reliance on the US dollar in trade and investment to enhance economic sovereignty and mitigate vulnerabilities associated with currency fluctuations. A significant initiative in this direction is the Pan-African Payment and Settlement System (PAPSS), launched by the African Union, which facilitates cross-border trade using local currencies, eliminating the need for US dollar conversions.
\nThis system is projected to save the continent approximately $5 billion annually in currency conversion costs. Additionally, countries like Nigeria and Tanzania have implemented policies to promote the use of their national currencies in international transactions. For instance, Tanzania has banned pricing in foreign currencies to strengthen the Tanzanian shilling\u2019s role in trade. Furthermore, the African Continental Free Trade Area (AfCFTA) agreement encourages member states to conduct trade in local currencies, fostering intra-African commerce and reducing dependence on external currencies.
\nASEAN member states are actively reducing their reliance on the US dollar by promoting the use of local currencies in trade and investment. Initiatives include establishing Local Currency Settlement (LCS) frameworks among countries like Indonesia, Malaysia, and Thailand to facilitate direct currency exchanges without involving the US dollar. Efforts are also underway to enhance regional payment systems, integrating digital platforms and standardizing QR code payments across member nations. ASEAN finance ministers and central bank governors have expressed commitment to advancing local currency usage to strengthen financial resilience and reduce exposure to external economic shocks.
\nMiddle Eastern nations are actively reducing their reliance on the US dollar by diversifying currency usage in trade, strengthening regional financial cooperation, and developing alternative payment systems. For instance, in January 2023, Saudi Arabia\u2019s Finance Minister, Mohammed Al-Jadaan, announced the kingdom\u2019s openness to trading in currencies other than the US dollar, marking a significant shift in its economic policy. Additionally, countries like Saudi Arabia, Egypt, and the United Arab Emirates have joined or expressed interest in joining the BRICS group, which advocates for reducing reliance on the US dollar by promoting trade in local currencies among member states. Efforts are also underway to establish payment systems that facilitate transactions in local currencies, reducing the need for dollar-based settlements.
\nIn a hypothetical world where countries have developed mechanisms to conduct trade and investment exclusively in their local currencies, the US dollar would lose its status as the global reserve and trade currency, leading to a sharp decline in demand and devaluation.
\nThis would result in inflation, higher borrowing costs for the US government, and reduced purchasing power for American consumers. The US\u2019s ability to impose financial sanctions and influence global financial institutions would diminish, eroding its soft power and strategic leverage. Globally, the financial system would become multipolar, with regional currencies like the euro, yuan, and rupee gaining prominence. This shift would challenge US economic dominance, forcing it to diversify its economy and foster innovation.
\nThe writer is a former press secretary to the president; former press minister to the Embassy of Pakistan to France and former MD (SRBC).<\/p>\n","protected":false},"excerpt":{"rendered":"
Qamar Bashir Efforts to challenge the US dollar\u2019s global dominance have historically been hindered by disparities among nations in economic strength, foreign reserves, human resource development, infrastructure, productivity, innovation, and wealth creation. However, recent advancements have enabled international and regional organizations to make significant progress in reducing reliance on the dollar for investment, trade, and […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[12456],"class_list":{"0":"post-445942","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-article","7":"tag-qamar-bashir"},"yoast_head":"\n