Increasingly, following the onset of the Russo-Ukrainian war more than a year ago—and the subsequent, unprecedented sanctions that were leveled against Russia via the U.S.-dominated global banking system—key, ascendent geopolitical actors are taking steps to reduce their dependence on the U.S. dollar.
The establishment of an alternative global banking system, which Moscow initiated in 2014 after the collective West imposed sanctions against it over the annexation of Crimea into the Russian Federation, has accelerated and expanded in scope after February 24th, 2022, with other countries—including but not limited to China, India, Brazil—also taking measures to move toward such a system.
Almost surely the principal factor driving countries to move away from the current global financial system, which has been in place since the end of World War II, is the U.S. government’s ability—and ever-increasing willingness to—weaponize the dollar against its political adversaries and those who refuse to go along with its political program.
Since the beginning of 2022, the ruble-yuan trade has increased eightfold. Additionally, it has been reported that Russia and Iran are working on creating a cryptocurrency backed by gold, with the idea that the gold-backed stablecoin could replace the U.S. dollar in international trade payments.
Meanwhile, several days ago, China, the primary rival to the United States’ global economic hegemony, and Brazil, which has Latin America’s largest economy, reached a deal to dump the U.S. dollar as an intermediary currency when carrying out trade and financial transactions. The two economic juggernauts will now conduct bilateral trade in their own currencies, exchanging yuan for reais, further internationalizing the yuan.
Beijing has similar currency deals with Russia, Turkey, Pakistan, and several other countries—and it continues to expand that list of countries. In February 2022, members of the China-led Shanghai Cooperation Organization (SCO)—a bloc that consists of China, Russia, India, Pakistan, Uzbekistan, Kazakhstan, Tajikistan, and Kyrgyzstan—agreed to increase the use of their national currencies in trade between the countries.
During the last week of March, in what amounted to a historical transaction that marked yet another blow to the U.S. dollar’s global hegemony, China carried out its first-ever yuan-settled energy deal—65,000 tons of liquified natural gas (LNG) from the United Arab Emirates (UAE).
In comments that raised eyebrows at the WEF’s Davos summit at the beginning of this year, Saudi Arabia, widely regarded as the United States’ closest ally in the Middle East aside from Israel, said that it was open to the idea of accepting other currencies besides the U.S. dollar for oil trade settlements.
“There are no issues with discussing how we settle our trade arrangements, whether it’s in the U.S. dollar, the euro, or the Saudi riyal,” Finance Minister Mohammed Al-Jadaan said.
For nearly five decades, Riyadh has priced its crude oil exports exclusively in dollars in exchange for the U.S. providing the kingdom with state-of-the-art military equipment.
India, also considered an ally of the United States, like China, has stepped up its efforts to internationalize its own currency, the rupee, and in doing so is helping to further the de-dollarization trend. Indian Commerce Secretary Sunil Barthwal, while unveiling the country’s new foreign trade policy on Friday, March 29th, said that the rupee will be used in trade with countries that are facing shortages of dollars or currency failures. He announced that trade between India and Malaysia can be carried out with rupees.
“Trade between India and Malaysia can now be settled in Indian Rupee (INR) in addition to the current modes of settlement in other currencies. This follows the decision by the Reserve Bank of India in July 2022 to allow the settlement of international trade in the Indian Rupee (INR),” the Ministry of External Affairs announced.
“This initiative by the Reserve Bank of India (RBI) is aimed at facilitating the growth of global trade and to support the interests of the global trading community in Indian rupees,” its ministry said.
India is already trading in rupees with Russia, Mauritius, Iran, and Sri Lanka.
