BRICS Economic Expansion Could Determine the Pace of 'De-Dollarization'

Ahead of the BRICS (Brazil, Russia, India, China, South Africa) summit, the China-led 'de-dollarization' among emerging economies is gaining attention, the Hong Kong South China Morning Post (SCMP) reported on the 19th.

Wang Yi, member of the Central Political Bureau of the Communist Party of China (center), attended the BRICS (Brazil, Russia, India, China, South Africa emerging economies) senior-level security meeting held in Johannesburg, South Africa, on the 25th of last month (local time). On that day, Commissioner Wang emphasized the strengthening of political trust and strategic cooperation among BRICS countries.
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According to the report, Dutch ING Bank forecasted in a report on the 17th (local time) that the 'de-dollarization' agenda would receive a certain level of response at this summer's BRICS summit. All BRICS leaders except Russian President Vladimir Putin, who has an arrest warrant issued by the International Criminal Court (ICC), will attend the BRICS summit held in South Africa from the 22nd to 24th. The attending leaders include those from China, Brazil, India, and South Africa.

Accounting for 8.3% of the global economy and 41.9% of the world population, this BRICS summit will be held under the theme "BRICS and Africa: A Partnership for Mutually Accelerated Growth, Sustainable Development, and Inclusive Multilateralism." The expansion of BRICS membership and other external growth issues are the most important agenda items. The ING report stated, "The economic expansion of BRICS could determine the pace at which commercial and financial systems outside the dollar sphere are adopted," adding, "This clearly challenges the dominant position of the dollar as an international currency."

After Russia's invasion of Ukraine in February last year, China raised its voice criticizing the U.S.'s 'weaponization of the dollar' as the U.S. imposed sanctions on Russia. The international community froze Russian overseas assets worth $300 billion (approximately 403 trillion KRW) immediately after the Ukraine war began. Major Russian banks were also excluded from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network.

China and Brazil agreed to strengthen trade using the Chinese yuan and Brazilian real at a summit held in Beijing in April. The joint statement from the summit between Chinese President Xi Jinping and Brazilian President Luiz In?cio Lula da Silva included the agreement to "deepen dialogue in economic, fiscal, and financial areas and strengthen local currency trade." Strengthening the use of local currencies in trade between the two countries, which amounted to $150.5 billion (approximately 202 trillion KRW) last year, is interpreted as a challenge to the U.S.'s 'dollar hegemony.' Prior to the summit, the two countries officially agreed in March to use their own currencies as the settlement currency in bilateral trade.

Before the summit with President Xi, President Lula visited the Shanghai headquarters of the New Development Bank (NDB) and called for an end to the dominance of the dollar in global trade.

He said in a speech, "Every night I ask myself why all countries must base trade on the dollar," and "Why can't we trade based on our own currencies? Who decided that the dollar would be the international currency after the gold standard disappeared?" The NDB, known as the 'BRICS version of the World Bank,' was established in 2015.

The ING report noted, "De-dollarization is mainly observed in the foreign exchange reserves of central banks," and "the dollar is being displaced by various currencies, including the yuan," explaining that the dollar's share in global foreign exchange reserves fell to 58.6% last year, marking the lowest point since data collection began in 1995. It added, "Looking at long-term trends, the U.S. dollar appears to be ceding ground mainly to Asian currencies such as the yuan and the Japanese yen."

However, due to the impact of high U.S. interest rates, the dollar's share in global foreign exchange reserves slightly rose to 59.2% in the first quarter of this year. Also, the yuan remains far less attractive than the dollar to private investors. Over the past seven years, the yuan's share in international assets outside central bank reserves has only increased from 5% to 6%. In contrast, the dollar's share in international assets outside central bank reserves was 49% last year, SCMP reported.

This content was produced with the assistance of AI translation services.