Economies In 2025 – The BRICS De-Dollarization Agenda And Russia's Embrace Of The Chinese Yuan For Much Of Its Global Trade

Since 1944, the U.S. dollar has been the base currency for global foreign reserves and the currency used for 90 percent of trade across nations. This has given the U.S. untold economic advantages that many other governments deem unfair. Central banks around the world maintain treasury reserves in the form of gold and foreign currencies, the majority of which are denominated in U.S. dollars. We use the greenback to import goods and to pay for foreign debts, which are mostly denominated in the American currency.

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The currency reserves of nations are backed by gold,[1] but this is not true for the United States. On August 15, 1971, President Nixon announced that the U.S. dollar would no longer be backed by gold.[2] Instead, it was to be backed by the sheer size of the U.S. economy, which, at that time, comprised 27 percent of global GDP. This gave the U.S. cart blanche to print dollars even without real wealth to back it up.

This has allowed the United States to amass colossal debts, which as of November 2024 amounted to some 36 trillion dollars, or 123 percent of its GDP.[3] American policymakers have been largely unconcerned with these debts, as, to a great extent, all they need to do is print dollars to pay for it. The U.S. dollar does not depreciate significantly when it prints money since demand for it is always strong. This is among the many advantages of being the global reserve currency and default currency for trade.

Other economies do not have this privilege. Recall when the German government printed 500 billion Deutsche Marks in 1920 to pay for World War I. In just three years, German inflation soared to 29,500% and the German currency was devalued to 17,000 Deutsche Marks to one U.S. dollar. The same happened to Venezuela in 2018.

In 2020, the U.S. Federal Reserve printed three trillion dollars.[4] Instead of the U.S. falling to hyperinflation, as most countries would, the U.S. exported inflation to the rest of the world while keeping its own inflation steady at between six and to nine percent.

How does the Unites States pass on inflation to other countries?

The U.S. employs a tool called Quantitative Easing (QE), which is a method whereby the Federal Reserve purposely lowers interest rates to abysmal levels while printing cash to get the economy moving. Let me illustrate how it works through an example.

To fight the economic reversals of the Wuhan virus, the Federal Reserve decreased interest rates to 0.25 percent while printing three trillion dollars. With the banking system awash with cash, the Federal Reserve purchased bonds from the likes of Bank of America (BA) at one percent interest. With the sale of its bond, BA now has $100 million in fresh liquidity at dirt cheap cost. BA can now offer new loans to American public at two to three percent and decrease amortization costs of existing loans. Not only will this encourage the American public to purchase more goods and services (because the financing cost is cheap), but it also puts more money in the pocket of those with existing loans since their amortization expenses are now lower. The American economy is pump-primed this way. But the effect on other countries is inflation.

When the American public has more expendable income, they start to purchase more imported goods. Let's say the U.S. purchases more refined coconut oil from the Philippines. Whereas it would normally cost $1,400 to purchase one ton of coconut oil, the upsurge in demand, due to QE, would cause prices to increase to $1,600. Meanwhile, prices remain constant in the Philippines at $1,400.

For Filipino producers, it makes more sense to export to the U.S. since it gives them a windfall profit of $200. Naturally, the Filipino producer will export most of his production to the U.S. This, in turn, causes supply shortages in the Philippines. These shortages trigger price increases. Multiply this price increases across hundreds of products and commodities and you get inflation.

Major Economies Conspire To Relieve Themselves From Reliance On The U.S. Dollar

But it seems the world has had enough of the "unfair" advantage of the U.S. Major economies have conspired to relieve themselves from reliance on the U.S. dollar. Seven key seismic events occurred in the last three months, all of which point to the start of the de-dollarization of the world: Russia has begun to embrace the Chinese yuan for much of its global trade; Saudi Arabia has considered accepting the Yuan as payment for oil exports; Brazil and China agree to forgo the U.S. dollar for their trade; France has agreed to purchase natural gas from China in Yuan; ASEAN is considering dropping the U.S. dollar for cross-border trade; and India has adopted a new foreign trade policy that prioritizes the Indian Rupee.

Meanwhile, Brazil, Russia, India, China, and South Africa, collectively known as BRICS, are planning to develop a new shared reserve currency, which does not yet have an official name. It is a common currency in which BRICS nations can trade among each other. The new currency will be managed by a New Development Bank, a financial institution established by BRICS in 2014 as an alternative to the IMF and World Bank. BRICS comprises 23.2 percent of global economic output.

Given that BRICS is not even an organized trading block like the EU, it is still questionable if the rest of the world will recognize the BRICS currency as legal tender. However, the fact that Saudi Arabia, Egypt, and the UAE are willing to support this new currency is a cause for concern.

The wheels are turning and the world's intention to move away from the U.S. dollar is clear. Trump vows to defend the predominance of the U.S. dollar at all costs. It will be interesting to see what policies president-elect Donald Trump will put into motion.

*Andrew J. Masigan is the MEMRI China Media Studies Project Special Advisor. He is a Manila-based economist, businessman, and political columnist for The Philippine Star. Masigan's articles in MEMRI are also published in The Philippine Star.