The race for global economic dominance
I AM fascinated by the shifting dynamics of global power, particularly how the BRICS nations - Brazil, Russia, India, China, and South Africa - are positioning themselves to challenge the United States' long-standing dominance.
As the global economic landscape shifts, the BRICS coalition emerges as a formidable player, challenging traditional Western powers, particularly the USA.
READ MORE: How BRICS could change the world economy - by Lisa N Edwards
While the BRICS nations initially focused on economic cooperation among emerging markets, recent developments suggest their ambitions are much broader. From currency swaps and development finance to creating an alternative global order, BRICS is steadily working to reshape the global economic landscape.
The rise of de-dollarisation and the growing role of digital currencies are central to this transformation, and the question now is: How close is BRICS to truly challenging the USA’s economic hegemony?
The race toward de-dollarisation is no longer just about moving away from the US dollar, it’s about embracing cutting-edge financial technologies like Bitcoin and central bank digital currencies (CBDCs).
With Russia accumulating Bitcoin and China accelerating its digital yuan program, BRICS is gaining significant ground. Watching these developments unfold, I can’t help but wonder if we are witnessing the dawn of a new global economic order, one where BRICS plays a much more dominant role than previously imagined.
The role of BRICS in reshaping global power dynamics
BRICS is home to some of the world’s fastest-growing economies, collectively representing around 42% of the global population and over 25% of the world’s GDP. This makes the bloc a significant contender in shaping the future of global economic policies. As these nations strengthen their collaboration, they aim to create alternatives to Western-dominated financial institutions such as the International Monetary Fund (IMF) and the World Bank.
A major step toward BRICS' expansion has been the potential inclusion of new member states, particularly in the Global South. Egypt, a key African country, is looking to solidify its ties with BRICS, further shifting the balance of global influence.
Egypt’s economic woes: A call for IMF support
Egypt, Africa's third-largest economy, has been grappling with severe economic challenges, including surging inflation, a growing trade deficit, and dwindling foreign reserves. To stabilise its economy, Egypt recently negotiated an expansion of its IMF bailout package to $8 billion, following the government's bold decision to devalue the Egyptian pound by 40%, pushing it to an unprecedented low against the US dollar.
The dramatic devaluation, combined with a significant increase in interest rates, was aimed at mitigating a severe foreign currency shortfall that threatened the country's economic stability.
The IMF acknowledged Egypt’s commitment to economic reform, praising its “decisive steps to move toward a credible flexible exchange rate regime”. Egypt’s central bank has been navigating tough macroeconomic challenges, exacerbated by the impact of the ongoing conflict in Gaza on its tourism sector and Suez Canal revenues.
The IMF deal, subject to approval, highlights Egypt’s need to preserve debt sustainability, restore price stability, and continue structural reforms to promote private sector-led growth.
As Egypt grapples with inflation rates of over 30%, its partnership with the IMF and potential alignment with BRICS could offer an alternative route for financial support. The nation’s economic instability opens the door for deeper ties with the BRICS bloc, reducing its reliance on Western institutions, including the IMF.
China’s role: Debt restructuring in Sri Lanka
While Egypt seeks support, other countries like Sri Lanka also find financial relief through non-Western channels.
Sri Lanka, which experienced a significant economic collapse in 2022, has been working to recover after defaulting on its foreign debt. In a crucial move, China, one of Sri Lanka’s largest creditors, restructured $4.2 billion of the country’s debt, giving Sri Lanka much-needed fiscal breathing space without the harsh austerity measures often imposed by Western lenders.
China’s role in restructuring Sri Lanka’s debt showcases BRICS' growing influence in global financial rehabilitation efforts. This move strengthens China’s influence in the region and signals a broader strategy of providing economic alternatives to countries struggling with debt repayment.
For Sri Lanka, the deal with China is critical in its journey toward economic recovery.
BRICS versus the USA: Competing visions for the global economy
While BRICS fosters financial support mechanisms among emerging economies, the USA remains dominant, with the dollar still the world’s primary reserve currency. However, with BRICS promoting alternatives like local currency trade settlements, there is growing speculation that this bloc could challenge the US dollar's supremacy.
As a major player in BRICS, China is at the forefront of this effort. Its involvement in restructuring Sri Lanka’s debt and fostering economic partnerships with countries like Egypt points to a broader strategy to reduce global dependency on the US-led financial system.
Moreover, BRICS nations have been advocating for developing a new reserve currency to bypass the US dollar, signalling an intention to carve out an economic sphere of influence that rivals the West.
De-dollarisation: A shifting global order?
While BRICS has yet to close in on the USA’s economic dominance fully, its recent actions suggest that the bloc is steadily positioning itself as an alternative global power. A key element of this strategy is de-dollarisation - the deliberate reduction of reliance on the US dollar in international trade and finance.
The debt restructuring in countries like Sri Lanka and financial aid to nations such as Egypt demonstrate that BRICS is expanding its influence beyond its original economic cooperation goals.
By promoting dedollarisation and encouraging trade in local currencies, BRICS is challenging the long-standing dominance of the US dollar as the world's primary reserve currency. This initiative reduces the vulnerability of BRICS nations to US sanctions and the fluctuations of the dollar-based financial system, offering an appealing alternative to other emerging markets.
The development of new financial frameworks and alternatives to Western institutions like the IMF sets the stage for a more multipolar world order.
Cryptocurrency also fits into this shifting landscape, as digital currencies offer an innovative solution to reducing dependence on the US dollar and traditional financial systems.
Decentralised currencies like Bitcoin and Ethereum enable cross-border transactions without intermediaries, providing a potential alternative to fiat currencies and state-controlled financial systems. BRICS nations, particularly China and Russia, have shown interest in creating state-backed digital currencies and using blockchain technology to further dedollarisation.
Russia has been actively accumulating Bitcoin, leveraging its decentralised nature to bypass Western financial sanctions. By accumulating $BTC, Russia reduces its reliance on the US dollar and other traditional financial systems while securing an asset that can facilitate international trade without centralised control. This strategic shift positions cryptocurrency as a powerful tool in the global dedollarisation movement, with Russia using Bitcoin to circumvent restrictions and protect its economic interests.
As BRICS nations explore these alternatives, cryptocurrencies are becoming critical in their strategy to reduce dependence on the US dollar and challenge the existing global financial order.
If BRICS continues to deepen these relationships, providing financial assistance and promoting alternative currency models, the bloc could significantly alter global power dynamics.
By undermining the US dollar's hegemony, BRICS is directly challenging the economic foundation of the USA’s global influence. However, much will depend on the cohesion of the BRICS alliance and its ability to resist both internal challenges and external pressures from the USA and its allies.
The race toward de-dollarisation is on, and BRICS is gaining ground, with a significant part of this competition unfolding in the digital currency race. As traditional global financial structures evolve, BRICS nations are not only looking at decentralised currencies like Bitcoin but also actively exploring the development of state-backed digital currencies or central bank digital currencies (CBDCs).
China is leading the charge with its digital yuan, which has already been tested in large-scale pilot programs. Russia is following suit, with plans to introduce the digital ruble, further distancing its economy from the US dollar and strengthening its position in cross-border transactions.
This digital currency race is crucial for BRICS nations as it gives them a technological edge, allowing faster, more secure, and cost-effective international trade while bypassing the need for dollar-based transactions. These CBDCs, combined with the decentralised nature of cryptocurrencies like Bitcoin, could further accelerate the de-dollarisation process by reducing reliance on the traditional Western financial system.
As BRICS continues to innovate and adopt digital currencies, it is poised to challenge the USA's dominance in global finance more directly than ever before.
For more information on Lisa N Edwards, visit https://linktr.ee/LisaNEdwards
