Multymeter.com – Business & Finance : The addition of the world’s leading oil producers and exporters, Iran, Saudi Arabia and the United Arab Emirates (UAE), to the BRICS makes the group even more comprehensive. It is also seen as making it easier for member countries to adopt local currencies for trade and leave the U.S. dollar behind.
As is known, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE will officially become BRICS members on January 1, 2024. Currently, BRICS members include Brazil, Russia, India, China and South Africa. Analysts believe that with this expansion, a wider adoption of local currencies for trade among BRICS countries makes more sense than using the U.S. dollar.
By making oil producers and consumers members, it will be the basis for BRICS to use local currency in settling trade transactions. According to a Shanghai-based oil industry expert who spoke to the Global Times on condition of anonymity, it would certainly be more efficient and reduce transaction costs. He added that the world is witnessing the sunset of the petrodollar.
“If you consider the other trading blocs of which each of the five BRICS countries are currently members, as well as the countries that wish to join the BRICS, then that is enough to establish an independent transnational monetary system. Oil trading can break the absolute dominance. of the petrodollar using local currency settlements,” the source said as reported by the Global Times, quoted on Saturday (26/8/2023).
On the other hand, BRICS leaders continued to emphasize the importance of encouraging the use of local currencies in international trade and financial transactions between BRICS countries and their trading partners. BRICS also promotes the strengthening of its correspondent banking network among its member countries that allows settlements in local currencies.
Not surprisingly, according to the data, so far the volume of transactions in BRICS using U.S. dollars and euros has continued to decline. The informant also emphasized that when oil and other commodities are traded directly in currencies other than the dollar, the role of U.S. Treasury bonds as a reserve currency will be permanently weakened.
This is because oil, as the most important traded energy commodity, is always associated with this status. “As a result, the liquidation of the U.S. dollar and U.S. Treasuries will accelerate,” the insider said. In fact, the trend to reduce U.S. Treasury holdings has gradually emerged. U.S. Treasury holdings in Saudi Arabia fell to a six-year low of $108.1 billion in June.
Cumulative net sales of U.S. debt were nearly $80 billion. According to U.S. Treasury Department data, the UAE also sold nearly $4 billion in total U.S. debt.
According to analysts, the de-dollarization trend is actually the bitter fruit of self-inflicted U.S. action. In recent years, unilateral U.S. financial sanctions have reminded a growing number of countries of the need and urgency of de-dollarization, which has now become a general consensus. Meanwhile, the U.S. dollar has long been propped up by global confidence in U.S. debt. But the United States has damaged the global economy through unlimited quantitative easing and sharp and massive interest rate hikes.
“The U.S. is arguably overdrawing credit from the U.S. dollar. In the past, there may not have been a better alternative to the U.S. dollar, and strong U.S. economic strength allowed the dollar to continue to maintain its hegemony.
Now things have changed. For example, the BRICS New Development Bank offers a better solution to the U.S. dollar, namely settlement in local currency to reduce the cost and complexity of cross-border trade,” said a director of a Beijing-based securities company surnamed Wang. He also noted that the dollar situation is affected by political and economic instability in the United States.
According to him, the high level of U.S. government debt and uncertainty about U.S. economic growth will cause the value of the dollar to fall. “It is natural for other countries to want to reduce their dependence on the dollar to reduce this risk,”he said.***
