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<ul class="summary-list"><li>Russian President Vladimir Putin tempered expectations on de-dollarization at BRICS' summit in Kazan.</li><li>BRICS aims to use local currencies, not create a SWIFT alternative, said Putin.</li></ul>Russian President Vladimir Putin appears to be tempering expectations on his de-dollarization drive.Putin has made it clear that he is keen to develop alternatives to the US dollar-denominated order. He highlighted the subject at the BRICS summit held in the Russian city of Kazan from Tuesday to Thursday.But moving away from the dollar is tough. His summit organizers advised attendees to bring <a target="_blank" class="" href="https://www.businessinsider.com/dedollarization-russia-brics-summit-foreign-attendees-cash-usd-euros-putin-2024-10">US dollars and euros</a> because Russian banks prefer these currencies to exchange for rubles.Russia faces sweeping sanctions over its full-scale invasion of Ukraine and has been locked out of the US dollar-dominated global financial system, including the widely used SWIFT financial messaging system, making payments and transactions challenging.Putin opened the summit by calling for an alternative payments system. He said he's not against the greenback but takes issue with the <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/dollar-weaponization-obliterate-global-economic-integration-dedollarization-2023-7">weaponization</a> of the greenback."We are not refusing, not fighting the dollar, but if they don't let us work with it, what can we do: we then have to look for other alternatives, which is happening," <a target="_blank" class="" href="https://interfax.com/newsroom/top-stories/106962/">Putin said at the summit</a> on Wednesday.The <a target="_blank" class="" href="https://cdn.brics-russia2024.ru/upload/docs/Kazan_Declaration_FINAL.pdf?1729693488349783">Kazan Declaration</a>, issued Wednesday, did not mention global dollar dominance — but it highlighted alternatives."We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners," said the Kazan Declaration.At a <a target="_blank" class="" href="https://tass.com/economy/1861797">press conference</a> wrapping up the summit on Thursday, Putin said that the BRICS group isn't creating an alternative to SWIFT but is trying to resolve the issues of payments with national currencies.The Russian President said the financial messaging systems of Russia's central banks and other BRICS member states are "sufficient," so the group is not coming up with a new system.Putin's comments came amid reports in the past year that the BRICS group was exploring the creation of a <a target="_blank" class="" href="https://www.businessinsider.com/dedollarization-china-india-brics-common-currency-jim-oneill-economy-dollar-2023-9">common currency,</a> planning a cross-border payments system involving central banks, and exploring cryptocurrencies.At least one idea seems to be firmly on the back burner, wrote analysts from <a target="_blank" class="" href="https://think.ing.com/articles/de-dollarisation-more-brics-in-the-wall/">ING in a Wednesday note.</a>"President Putin seems to have kicked the idea of a single BRICS currency into the long grass," the ING analysts wrote."Instead, the focus is on decreasing the use of the dollar and, where possible, increasing the use of BRICS currencies," they added.<h2 id="d51dc033-b5ef-498c-9150-bc54399942bd">BRICS is a growing group that is de-dollarizing</h2>Now with nine members, BRICS is a group of emerging countries that is expected to drive global growth. They include Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates.A <a target="_blank" class="" href="https://www.bloomberg.com/news/articles/2024-10-23/imf-sees-growth-shift-toward-brics-away-from-g7-in-new-outlook">Bloomberg analysis</a> of the International Monetary Fund's latest growth forecasts shows that BRICS economics are likely to contribute to a bigger share of global growth over the next five years versus G7 economics, which includes the US.China — even though it's in a prolonged slowdown — is expected to be the top contributor, accounting for about one-fifth of global growth over the five years. This is a bigger share than all of the G7 countries combined.BRICS member states represent about 45% of the world's population and 37% of global GDP based on purchasing power parity.They also control 42% of bank foreign exchange reserves, "likely contributing to the global de-dollarisation process," wrote the ING analysts.ING's analysis shows the expanded BRICS group "actively de-dollarizing" financial flows — such as cross-border bank claims and border external debt — as well as using more local currencies via SWIFT.However, BRICS economies have a smaller global presence in global financial flows, limiting the impact of de-dollarization, the ING analysts added. This is also the case in the use of local currencies."This growth from a very low base is not an immediate and direct threat to the US dollar, which seems to be retaining its global dominance despite the shifting role of the USA in the global economy and markets," wrote the ING analysts."Nevertheless, BRICS+ has the potential to challenge some DM currencies in the future," they added, referring to developed markets.<h2 id="d382f3bc-8392-443e-b336-a18910bb5780">King Dollar is hard to replace</h2>Despite a desire for a more equitable monetary system, the greenback is so pervasive and entrenched in the world's financial order that it's <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-war-currency-usd-dominance-china-yuan-economy-2024-5">extremely difficult to dethrone.</a>And this is before factoring in the many <a target="_blank" class="" href="https://www.businessinsider.com/russia-hosts-brics-summit-defy-west-us-economy-china-dollar-2024-10">competing priorities and rivalry</a> among BRICS members."The amount of intrinsic problems inside the BRICS union, in my view, makes these cross-border payment systems a kind of a red herring which would not fly anywhere higher than the idea of a <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/dedollarization-us-dollar-outlook-currencies-forex-market-brics-common-currency-2023-8">BRICS currency,"</a> Alexander Kolyandr, a non-resident senior scholar at the Center for European Policy Analysis, said at a press briefing on Monday."A key element that these systems cannot easily replicate is the stability, liquidity, and convertibility of the US Dollar," wrote Tom Keatinge, the director of the Centre for Finance and Security at UK"s Royal United Services Institute, in a note a Thursday.Other issues include what countries would use the alternative currencies for and if the West would sanction such alternative systems, he said."The extent to which such alternative payment systems take root will be a function of trust in the form of payment on which the system is based and the extent to which participants in the system want to hold that alternative form of payment," wrote Keatinge.

Putin has spent years championing the idea of de-dollarization — but a new reality is setting in 

<ul class="summary-list"><li>The emergence of new regional payment systems likely won't spur de-dollarization, OMFIF said.</li><li>So far, their infrastructure is weak and they are plagued by implementation challenges.</li></ul>De-dollarization risks are on the rise, but rising alternative transaction networks won't be the basis of a major decline in the use of the US currency, the Official Monetary and Financial Institutions Forum said.According to <a href="https://www.omfif.org/2024/05/will-growth-in-regional-payment-systems-spur-de-dollarisation/" target="_blank" rel="noopener">commentary</a> published Thursday, obstacles are already afflicting new regional payment systems, even as de-dollarization rhetoric creeps up."For instance, regional payments continue to suffer from weak implementation, infrastructure and complex geopolitical obstacles among participatory economies," senior economist Julian Jacobs wrote. "This is why the emergence of the technological capacity to drive de-dollarisation does not necessarily mean de-dollarisation will occur."Such systems include tech initiatives such as mBridge, a cross-border platform built around emerging central bank digital currencies. Backing it are monetary authorities in China, Hong Kong, the United Arab Emirates, and Thailand.Meanwhile, efforts to assemble regional financial systems have delivered the Pan-African Payment and Settlement System, OMFIF cited as one example. This infrastructure delivers payments in local currencies, in a step away from the greenback.Still, none of these have been enough to shake how entrenched the dollar remains in world finance, OMFIF said. Not only does it account for 58% of global reserves, it tops all other currencies for its share of global payments. As of April, it accounted for 47.31%, according to the latest data from the <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre" target="_blank" rel="noopener">SWIFT financial system</a>. While countries may want to wean off of the dollar — especially in light of how the greenback was used to punish Russia over its invasion of Ukraine in 2022 — a major migration to regional payment systems would require economies to tackle a whole new set of issues, OMFIF said. If de-dollarization is a rising threat, it's instead coming from Western competition, the think tank said. That's as the euro has come to serve as the world's second top reserve currency and offers high liquidity and quality infrastructure.To be sure, those worried over the greenback's status have chiefly focused on China's yuan, as Beijing pursues policies to bolster its international standing. For instance, it's even launched its own payments infrastructure, the Cross-border Interbank Payment System.But China's efforts to create an alternative system are a defensive ploy for now, OMFIF wrote in a separate <a href="https://www.omfif.org/2024/05/china-is-defending-against-the-dollars-dominance/" target="_blank" rel="noopener">note</a> from May. "The goal is to minimise the negative consequences of the West's comprehensive sanctions against China in extreme geopolitical scenarios such as a military conflict over Taiwan," Council on Foreign Relations fellow Zongyuan Zoe Liu wrote. "Expanding the use of the renminbi in trade is less challenging than increasing its status as an international reserve currency."

De-dollarized payment systems are cropping up. Here's why they're unlikely to dent greenback dominance.

<ul class="summary-list"><li>De-dollarization could lead to a vicious cycle of economic destruction, according to an Australian economic think tank.</li><li>That's because waning use of the dollar could bring on hyperinflation, researcher Michael Roach said.</li></ul>The use of the US dollar as a reserve currency is under threat — and the greenback is headed for a vicious cycle that will further erode its dominance, according to the Australian think tank the <a href="https://www.lowyinstitute.org/" target="_blank" rel="noopener">Lowy Institute</a>.That's because the declining use of the dollar could lead to hyperinflation, which would, in turn, lead to higher interest rates as central banks combat high prices. And those rate hikes will weigh on asset prices like stocks, researcher Michael Roach said in a recent <a href="https://www.lowyinstitute.org/the-interpreter/de-dollarisation-shifting-power-between-us-brics" target="_blank" rel="noopener">op-ed</a> for The Interpreter, a publication run by the think tank.This outlook is furthered by speculation that <a href="https://markets.businessinsider.com/news/stocks/dedollarization-greenback-will-die-brics-nations-gold-backed-crypto-kioysaki-2023-7">BRICS nations could potentially launch a rival currency</a> to the US dollar, backed by gold, Roach said, though <a href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-dominance-currencies-brics-china-russia-india-putin-2023-7">such plans</a> have been disputed. Nations like China, Russia, and Saudi Arabia have also started to shift away from use of the dollar in global trade, which could further weaken the dollar's dominance.Meanwhile, the US Dollar Index, which weighs the greenback against a basket of other currencies, has declined 4% over the last year, signaling the dollar's decline in purchasing power. Interest rates in the economy are also at their highest level since 2001 as the Fed continues to monitor high inflation."The trend of de-dollarisation is occurring — but it is not something unique," Roach said, pointing to previous dominant currencies that were later replaced, like the British sterling. "There will inevitably be a shift in the world order, and it may well be the BRICS' time."But some experts have disputed the <a href="https://markets.businessinsider.com/news/currencies/dollar-dominance-dedollarization-paul-krugman-nyt-us-economy-china-yuan-2023-7">de-dollarization trend</a>, making the case that the phenomenon more based in fear than reality. Though use of the dollar in global transactions and central bank reserves has declined in recent years, the greenback still by far beats use of any other currency, economic data shows.The dollar accounted for at least <a href="https://www.bis.org/statistics/rpfx22.htm" target="_blank" rel="noopener">one side in 6.6 million transactions in April 2022</a>, according to Bank of International Settlements data, meaning it has a role in 88% of all global trade. Meanwhile, dollar reserves accounted for <a href="https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4" target="_blank" rel="noopener">54% of all foreign exchange reserves</a> in the fourth quarter of 2022, according to the International Monetary Fund.

De-dollarization will be a vicious cycle as hyperinflation leads to higher rates that will further erode the greenback's power, think tank says

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Putin has spent years championing the idea of de-dollarization — but a new reality is setting in

Huileng Tan

De-dollarized payment systems are cropping up. Here's why they're unlikely to dent greenback dominance.

Filip De Mott

De-dollarization will be a vicious cycle as hyperinflation leads to higher rates that will further erode the greenback's power, think tank says

Jennifer Sor

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