BRICS: Sanctions Led To De-Dollarization, Say U.S. Feds

BRICS kick-started the global de-dollarization program after the U.S. pressed sanctions on Russia in February 2022 for invading Ukraine.

The alliance members Russia and China went on a world tour to convince developing countries to ditch the U.S. dollar for trade. They have been successful in their quest, as a handful of trade deals were settled in local currencies rather than the U.S. dollar.

In the latest update, the U.S. Feds acknowledged that pressing sanctions against Russia in 2022 has intensified de-dollarization.

U.S. Fed Governor Christopher Waller acknowledged that the White House's decision to impose sanctions on developing countries led BRICS to kick-start the de-dollarization agenda.

"If these sanctions and policies are long-lasting, the shifting cross-border payments landscape, including the rapid growth of digital currencies, could also pose challenges to the dominant role of the U.S. dollar," said Waller.

China and Russia's Geopolitical Move

Waller explained that China and Russia are capitalizing on the geopolitical situation and pushing the BRICS' de-dollarization initiative ahead. Russia, China, and even BRICS members India and the newly joined country UAE are aiding the de-dollarization agenda by settling trade in local currencies and not the U.S. dollar. This move is seen as a strategic effort to diminish the influence of the U.S. dollar on global trade.

If the de-dollarization trend continues, BRICS will gain while the U.S. will lose out on the global financial stage.

Around 90% of bilateral trade between Russia and China is already settled in the Chinese yuan and the ruble. This significant shift indicates the potential for broader adoption of local currencies in international trade agreements.

A few BRICS members, like India and the UAE, are also paying the Chinese yuan for cross-border transactions. This trend is expected to continue as more countries explore alternatives to the U.S. dollar.

However, Waller revealed that despite the threats, the U.S. dollar will prevail against all leading local currencies. According to Waller, the U.S. dollar's resilience is rooted in its established global trust and the strength of the U.S. economy.

Implications for U.S. Sectors

The ongoing de-dollarization initiative presents several challenges for the U.S. economy. Various sectors, particularly those heavily reliant on international trade, could face significant disruptions. The financial services sector, for example, may see a decline in demand for dollar-based transactions and services.

Additionally, industries like technology and manufacturing that depend on global supply chains might experience increased costs and complexity due to currency fluctuations and the need to manage multiple currencies.

"If these sanctions and policies are long-lasting, the shifting cross-border payments landscape, including the rapid growth of digital currencies, could also pose challenges to the dominant role of the U.S. dollar," reiterated Waller.

This statement highlights the potential long-term impact of current geopolitical strategies and the importance of adapting to a rapidly changing global financial landscape.