In a significant shift, Saudi Arabia has reportedly decoupled from the U.S. dollar, effectively ending an 80-year agreement that has underpinned global oil trade. While Saudi officials have labeled these reports as 'fake news', the implications of this move are profound. Countries are increasingly moving towards using multiple currencies for oil purchases, including the Chinese RMB, euros, yen, and yuan, which could lead to a substantial decline in the dollar's reserve currency status. This transition poses a potential threat to the U.S. economy, as the dollar's dominance has historically provided significant economic advantages to the United States.
The weakening of the U.S. dollar's global standing could affect trade, debt, and military negotiations. Recent developments, including a credit downgrade for the U.S. last year, have raised concerns about the sustainability of U.S. economic power. Higher interest rates are already leading to increased consumer costs and business failures, particularly among small businesses, which employ 99% of the U.S. workforce. The BRICS consortium, comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the UAE, is actively pushing to eliminate the U.S. dollar as the world reserve currency, further complicating the economic landscape for the United States.
Recent reports indicate that the BRICS and CIS nations are advancing their de-dollarization efforts, with the CIS bloc settling 85% of cross-border transactions in local currencies. This marks a significant increase in the use of alternative currencies, as U.S. dollar reserves have fallen below 60%, a level not seen since 1995. Russian President Vladimir Putin has emphasized the importance of technological sovereignty and economic independence during the CIS summit, highlighting the bloc's commitment to reducing reliance on the dollar. This shift promotes regional economic collaboration and poses challenges to the U.S. dollar's global influence, potentially leading to hyperinflation and deficits in the U.S. economy as the transition to a multipolar currency system unfolds.
In parallel, the momentum of de-dollarisation is being influenced by U.S. sanctions and economic challenges. Key events include the passage of the REPO Act on April 25, 2024, which allows for the confiscation of Russian assets to support Ukraine. Russian President Vladimir Putin has also emphasized the need for member states of the Shanghai Cooperation Organization (SCO) to settle trade in their own currencies, a statement made on July 4, 2024. This push for alternative currencies is echoed in Pakistan's recent application for BRICS membership in November 2023, although its heavy reliance on dollar-denominated debt complicates its ability to fully embrace de-dollarisation. As of March 2024, Pakistan's debt profile includes $38.4 billion in multilateral debt and $18.9 billion in bilateral debt, with exports and remittances insufficient to cover imports and debt repayments.
Inflation is at historic levels, and the potential loss of reserve currency status could devastate the U.S. economy. The interest payments on the national debt now exceed defense spending, highlighting the precarious financial situation the country faces. As the global economy shifts towards alternative currencies, the U.S. must navigate these changes carefully to maintain its economic stability and influence on the world stage. In light of these developments, experts argue that Washington needs to adopt a containment strategy reminiscent of the Cold War to protect the U.S. dollar's hegemony. This strategy would involve countering the rising influence of BRICS, which now accounts for 35.6% of global GDP and has attracted interest from over 40 nations seeking membership. The establishment of the New Development Bank by BRICS as an alternative to the IMF and World Bank further underscores the urgency of this situation. As global oil trading in U.S. dollars dropped by 20% in 2023, it is clear that the U.S. must take proactive measures to safeguard its economic interests against the backdrop of increasing geopolitical tensions. [dccbb4ea][cb74b21f][93a749c1][65657420]