Putin Announces a Financial Revolution: BRICS Countries Challenge the Dollar*

*Editor’s Note: On March 4, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media or in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information” about the invasion with up to 15 years in prison.

At the last summit of the leaders of the BRICS countries, Russian President Vladimir Putin presented a truly revolutionary proposal: to create a new reserve global currency on the basis of the participant countries’ national currency baskets. If the implementation of such an initiative is successful, the U.S. dollar will lose a lot of its weight, and the Bretton Woods system will practically be buried; after all, since 1944, the financial system of the capitalist world rested exclusively on the American dollar’s domination.

The idea of creating an alternative global currency has been around for a long while. The desire of the U.S. to establish a unipolar world order is repugnant to the vast majority of humanity. However, just showing concern is one thing, while taking specific steps to keep the appetites of the “world hegemony” in check is another thing. The foundation of U.S. power is the dollar — the global reserve currency that secured its place in global trade since the 1940s. The Bretton Woods financial system, established in 1944, practically set a gold standard and elevated the American national currency as the basis of the capitalist world.

BRICS Challenges the Globalists

However, the latest events appeared to deliver a real blow to the greenback's dominance. Sanctions introduced against Russia revealed that the dollar is not about stability and the security of operations; it’s a real geopolitical weapon. It can be used at any given moment, and not just against outcast countries like Iran or North Korea, but even against a country like Russia. Naturally, a range of other countries have questioned their own financial security and have begun their work considering negative scenarios. One can only get rid of potential costs in case of American restrictions (whatever reason might cause them) by diversifying their currency basket or by creating a new means of payment.

The idea of a common currency for the countries of the Eurasian Economic Union has been circulating in the Russian expert community for a while. But such initiatives, firstly, are absolutely fruitless, considering the apparent unwillingness of the post-Soviet local elites to negotiate; secondly, they are pointless, since Russia makes up 86.4% of the EEU economy. It would be more logical to introduce the Russian ruble as the common currency, instead of again and again savoring the idea of creating various currencies like “altyns” and “evrazes.” But more global associations like BRICS are a different matter — there’s room for ideas, considering the economic weight of the participant countries.

At the last BRICS summit (conducted in the format of a video conference), Putin proposed the revolutionary idea of creating a new global reserve currency on the basis of the participant counties’ national currency baskets. This question, as per the words of the Russian leader, is already being actively considered by experts. It’s important that Russian ruble will be in the supranational basket of currencies. Any transaction between third countries in our currency will contribute toward the real, not fictive, strengthening of our monetary unit. That, in turn, will be the last nail in the coffin of the Bretton Woods system, so zealously guarded by Washington for almost eight decades.

The dedollarization of economies is not just a transition to national currencies in mutual settlements, because these currencies will still be tied to the dollar and backed by it. The true end of the greenback will come when its place is taken by, let’s say, the yuan. Russia and India are negotiating conducting mutual settlements in rubles and rupees, on the basis of the Chinese currency. In the future, however, this scenario could have its own risks. The yuan, as of now, is unable to replace the dollar. Undoubtedly, the trade in Southeast Asia will slowly move to the yuan, but we are talking about regional levels. That’s why Beijing itself could be interested in Putin’s proposal. After all, the distribution of shares in the basket of reserve currencies will be beneficial for China: 58.8% for the yuan, 22.11% for the rupee, 9.81% for the ruble, 7.53% for the Brazilian real and 1.75% for the South African rand (calculated on the basis of the gross domestic product, based on purchasing power parity).

There are apparent contradictions here. It’s clear that BRICS itself strongly relies, in many respects, on China. Without China, it will become nothing more than another degenerated Commonwealth of Independent States, or something similar to this useless organization. It’s doubtful that Beijing would surrender almost half of the currency basket to its partners, considering the growing geopolitical weight of the country and its role in the global economy. India is also unlikely to settle for just 22%. Yes, it corresponds to India's current environment and circumstances, but the GDP of the country is growing rapidly. The indexation of the currency basket in accordance to the economy size could be implemented, but then Beijing would once more protest, since it wouldn’t agree to give up its position to India in time. Russia is also unlikely to settle for 10%, taking into account the grown geopolitical status of our country; as the events in Ukraine have shown, we can easily challenge the entirety of NATO.

What of It?

In any case, we need to come to the table and negotiate. Brazil, Russia, India, China and the Republic of South Africa make up 40% of the world’s population, 25% of the world’s GDP, 20% of the international trade among the participant countries alone and 35% of the foreign exchange reserves of the world. Together, we are capable of bringing down the framework so diligently built up by the U.S. All other projects will have purely regional significance.

Let’s consider such a seemingly successful example as the euro. It never became a full-fledged replacement for the dollar; moreover, its existence in no way contradicts the basic tenets of the Bretton Woods system, or we would have seen a harsh reaction from the U.S. The U.S. and its satellites are unlikely to weather such an economic blow, since they will lose their main weapon, along with their nuclear one — the financial one. We also cannot exclude the domino effect, when the countries of Latin America, Africa, Asia and even Europe will begin to strive for a more just and less demanding center of power than Washington.