Brazilian President Luiz Inácio Lula da Silva, on his first official visit to China since assuming office at the start of this year, urged nations to abandon the U.S. dollar and develop a shared currency or their national currencies.
The New Development Bank (NDB), situated in Shanghai and representing the informal BRICS coalition, is where he made his remarks. About 16 years ago, the BRICS grouping of Brazil, China, India, Russia, and South Africa was conceived as a mechanism for large growing economies.
In recent years, however, the organization has seen a resurgence as more and more countries have expressed interest in joining. Economically, countries lose out when they have to use the U.S. currency and pay high conversion rates.
Some countries may view the use of national currencies as a means to reduce currency mismatches and the costs associated with converting into U.S. dollars, according to Zaroslav Lissovolik, founder of BRICS+ Analytics and a member of the Russian Foreign Affairs Council.
The New Development Bank (NDB) is an excellent boon to countries needing development assistance since it expands the range of possibilities available to these countries. This is because the effects of the Bretton Woods system have been unevenly distributed worldwide. Ramesh and Lissovolik see the NDB as a complementary resource to Western funding rather than a replacement.
They also highlight the political aspect of de-dollarization, which has gained significant impetus due to Washington’s approach of using its economic weight to penalize countries that have chosen unpopular policies.
For this reason, many countries, like India, China, Russia, and Indonesia, have switched away from Mastercard and Visa or are considering doing so.
Russia’s war in Ukraine provided concrete proof that trade can be halted if a country refuses to accept U.S. dollars as payment.
The geopolitical drivers are not limited to sanctions against Russia but rather reflect broader trends that have been developing over several years and have gathered momentum since the conflict in Ukraine.
China sells its wares and services to other countries, while energy is shipped from Saudi Arabia, Iran, and Russia to China and India. It is prudent for these nations to conduct bloc or bilateral trade in their currencies.