The ongoing competition between the G7 and BRICS alliance to challenge the US dollar's dominance is heating up, with recent developments highlighting the geopolitical tensions surrounding currency use. Central Banks of BRICS and other developing countries, including several African nations, are actively diversifying their reserves by buying more gold and reducing their holdings of the US dollar. Countries such as Zimbabwe, Madagascar, Nigeria, Tanzania, Uganda, and South Sudan have taken steps to increase their gold reserves to protect themselves from currency losses and the risks associated with the growing US government debt. The Central Bank of Uganda has unveiled a program to purchase gold from local artisanal miners, while the Tanzanian government plans to spend $400 million to purchase six tonnes of gold and limit the use of the US dollar within the country. Nigeria is also planning to purchase gold domestically to increase state reserves. This shift in reserves is seen as a strategic move to decrease reliance on the US dollar and strengthen local currencies and native economies of developing countries [abb3ce91] [a3049c1a].
In a recent analysis, economist Mohamed El-Erian warned that the US dollar is losing its dominance as foreign central banks are increasingly buying fewer Treasury securities and holding more gold. This de-dollarization trend is particularly driven by nations in the Global South, especially within the BRICS alliance. El-Erian noted that the price of gold has risen 40% in the past year, reflecting a growing preference for gold over the dollar among these countries. He highlighted that foreign ownership of US Treasury securities has fallen from 34% in 2015 to about 23-24% in 2024, with China’s holdings dropping from over $1.3 trillion in 2014 to less than $800 billion in 2024. This shift is attributed to the US's weaponization of trade and sanctions, which have contributed to the growing skepticism towards the dollar [d0b69fd2].
On December 2, 2024, Donald Trump, the US President-elect, issued a stark warning to BRICS nations, including India, Russia, China, Brazil, Egypt, South Africa, Iran, and the UAE, demanding that they commit to not creating or supporting a currency to replace the US dollar. He threatened a 100% tariff on any country that attempts to undercut the dollar, stating, "Say goodbye to selling into the wonderful US Economy" if they pursue alternatives to the dollar. This warning was shared on his social media platform, Truth Social, emphasizing the importance of the dollar's status as the world reserve currency. Trump reiterated his commitment to economic nationalism, stating that countries should "wave goodbye to America" if they attempt to replace the dollar. His comments followed Brazilian President Luiz Inacio Lula de Silva’s proposal during the 2023 BRICS Summit to study a common currency, which raised concerns among US officials [783cbec5] [0ede8956] [bdcf8fc2] [b351795e].
In response to Trump’s threats, Kremlin spokesman Dmitry Peskov warned that any US attempt to force countries to use the dollar would backfire. He noted that the dollar is losing its appeal as a reserve currency and that more countries are switching to national currencies for trade. Peskov's comments reflect the growing sentiment among BRICS countries to explore alternatives to the dollar, especially in light of Western sanctions on Russia, which have accelerated discussions on a common currency within the bloc [ca02a00f].
Trump's warning came in light of ongoing discussions among BRICS countries about a potential single currency, which were highlighted during the BRICS summit in Johannesburg in August 2023 and again in Kazan, Russia, in November 2024. At the Kazan summit, Russian President Vladimir Putin posed with a mock-up BRICS bill, and the Kazan Declaration welcomed local currencies in trade. India has operationalized local currency settlements since 2022, reflecting a cautious approach to the ongoing discussions about de-dollarization within the BRICS framework. However, economic disparities and the lack of a unified central bank pose significant challenges for a BRICS currency [c32af08d] [9abb41bb].
India's Foreign Minister S. Jaishankar confirmed India’s stance against abandoning the dollar, emphasizing that alternative measures would only be considered if trading partners reject the dollar. This statement reflects India’s cautious approach to the ongoing discussions about de-dollarization within the BRICS framework [f79d0840].
Recent analysis suggests that BRICS states, which account for 24% of global GDP and 16% of global trade, are unlikely to significantly reduce their dependence on the US dollar, which currently constitutes 59% of global central bank reserves. The US dollar remains dominant in global transactions, accounting for 84% of them. Despite the discussions around a common BRICS currency, Russian President Vladimir Putin has described it as a long-term prospect, indicating that immediate changes are not anticipated [6e1ad2be] [6fa148a0].
The push for diversification of world currency reserves has intensified since the 2008 financial crisis and escalated post-2022, particularly highlighted by the recent BRICS Summit in Kazan. The BRICS group has expanded to include Iran, Egypt, Ethiopia, and the UAE, with Turkey, Azerbaijan, and Malaysia applying for membership. Nearly 50 countries have expressed interest in joining BRICS, signaling a shift in global economic dynamics. While the US dollar remains dominant in global trade, its weaponization raises concerns among both Global South and Western economies. Since BRICS' inception in July 2009, gold prices have surged from $953 to nearly $2,740 per ounce, reflecting the bloc's impact on global economic strategies [31147a47].
Several African countries, including Nigeria, Uganda, Zimbabwe, Tanzania, South Sudan, and Madagascar, are increasing their gold reserves and purchasing gold domestically due to concerns over the stability of the US financial system and the weaponization of the US dollar. The move is driven by rising inflation, escalating debt levels, and geopolitical tensions. South Sudan, Uganda, Tanzania, Nigeria, and Madagascar have implemented strategies to boost their gold reserves, including launching domestic gold-buying programs and repatriating existing gold reserves. Ghana and Zimbabwe have proposed backing their national currencies with gold. Economic analysts suggest that these strategies are a response to domestic economic issues and a precaution against potential future risks, such as a rise in gold prices or a decline in the value of the US dollar. African leaders and central bankers are also concerned about the weaponization of the dollar and other risks associated with the greenback, including profligate spending and growing national debt. This trend of BRICS countries and African nations reducing their US dollar holdings and increasing their gold reserves is part of a broader de-dollarization movement. Central Banks are seeking to diversify their reserves away from the US dollar to reduce their vulnerability to economic and geopolitical risks associated with the currency. As Central Banks hold less US dollars and more gold, it could lead to a decline in the US dollar's status as a reserve asset. This could potentially weaken the dominance of the US dollar and strengthen local currencies, particularly in developing countries. The move towards de-dollarization aligns with the BRICS alliance's goal of challenging the US dollar's hegemony and creating a more multipolar global financial system [abb3ce91] [a3049c1a].
Recent statistics reveal that the US dollar's global influence is declining, currently constituting 58% of global currency reserves and 54% of export invoicing. BRICS nations, particularly Russia and China, are strengthening alliances and moving towards de-dollarization, with Russia now favoring the renminbi over the dollar. Since 2001, China has become the second-largest economy, surpassing the US in purchasing power parity (PPP) in 2017. The US economy remains nominally larger, but trends suggest a potential shift in economic dominance. Sanctions against Russia have increased gold's importance as a stable reserve asset, prompting BRICS countries to boost their gold reserves. A total of 43 countries have expressed interest in joining BRICS, which could create the largest political and economic bloc, accounting for over 50% of global GDP and 71% of the world’s population. This raises questions about whether advanced democracies are losing influence to authoritarian regimes, suggesting a possible emergence of a multipolar world [037a8ecb].
Furthermore, prominent figures like Ron Paul and Brazilian President Luiz Inacio Lula da Silva have voiced concerns regarding the US dollar's dominance since the Bretton Woods Agreement in 1944, suggesting that its era may be nearing an end. The BRICS bloc is proposing an alternative trading currency, potentially backed by gold, to stabilize global finance. South Africa's BRICS ambassador, Anil Sooklal, advocates for a multipolar financial world, while Saudi Finance Minister Mohammed al-Jadaan has expressed openness to non-dollar trading. Economists warn of inflation risks if dollars return to the US, highlighting the potential implications of a shift toward a BRICS currency [792c4964].
Recent commentary from National Australia Bank strategist Rodrigo Catril indicates that Trump’s aggressive stance may inadvertently accelerate moves away from the dollar among emerging nations. Mark Sobel, a former US Treasury official, has described the plans for a single BRICS currency as unrealistic, suggesting that the bloc's members control over 40% of global central bank reserves but face significant challenges in unifying their currencies. South Africa has denied any plans for a new currency, reaffirming its commitment to the existing financial system. The US dollar currently accounts for 88% of trades in the $7.5 trillion daily foreign exchange market, but the long-term outlook for its supremacy remains uncertain as Brazil and China have begun settling trade in local currencies [bb617882].
In light of these developments, the BRICS alliance is exploring alternative payment systems, including the potential for a gold-backed blockchain card, as discussed in their recent meetings. The politicization of the US dollar through the SWIFT payment system has prompted BRICS to consider digital currencies and other innovative financial technologies to enhance their economic independence and resilience [581c4053].