Cairo: Hani Kamal El-Din
In a move that could reshape the global financial system and threaten the United States’ dominance over the global economy, Russian President Vladimir Putin is set to present a comprehensive plan at the upcoming BRICS summit in Kazan. This plan, which has sparked wide debate internationally, aims to end the long-standing dominance of the U.S. dollar as the world’s reserve currency and replace it with a new system that aligns with current global changes, enhancing financial independence for BRICS member states.
According to a report published by The Economist, Putin intends to propose this plan to BRICS leaders, aiming to establish a new financial system that undermines U.S. control over the global financial system. Experts have described this initiative as bold, as it proposes designing an alternative global payment system that would allow BRICS nations and their allies to bypass financial sanctions imposed by the U.S. and the West.
The Impact of U.S. Financial Dominance
Since the end of World War II, the United States has held a central role in the global financial system, with the dollar serving as the primary reserve currency relied upon by most countries in their international trade and financial transactions. Through the global banking clearing system, major financial transactions are routed through American banks or by accessing the U.S. banking system, further reinforcing American dominance and subjecting any country dealing in dollars to U.S. political influence.
However, with rising political and economic tensions between the U.S. and Russia, Putin and his BRICS allies have been seeking alternatives to reduce their dependence on the U.S. dollar, especially following the economic sanctions imposed on Moscow due to geopolitical events. Putin views these sanctions as a catalyst to accelerate the process of detaching from the dollar, a move he hopes will protect the Russian economy from external interference.
The Alternative Financial System
According to The Economist, Russia’s plan revolves around establishing an alternative financial system based on national currencies or digital currencies backed by fiat currencies. This system would allow BRICS central banks to conduct cross-border financial transactions without relying on the U.S. banking system or the dollar. Such a system would not only reduce the financial costs incurred by countries dealing in dollars but would also make transactions faster and more efficient.
To clarify the concept, the current global financial system is compared to long-haul flights where passengers must transit through intermediary airports if there are no direct flights between destinations. In the financial context, the U.S. acts as the primary hub through which most international transactions pass via American banks. Russia’s plan proposes an alternative system that bypasses this hub, allowing countries to transact directly with each other.
Implications for the Global Economy
The proposed financial system is expected to offer BRICS countries, particularly developing nations and those in the “Global South,” a more cost-effective and time-efficient way to conduct international transactions. This system would not only improve transaction speed and efficiency but also increase financial independence for these countries, reducing their exposure to global market fluctuations and Western economic sanctions.
While this direction may present an opportunity for BRICS nations to achieve greater economic independence, it has raised concerns in the West, particularly in the U.S., which fears that such a system would allow participants to bypass economic sanctions and undermine the decades-long dominance of the U.S. in the global financial system. According to The Economist, U.S. dominance over the global financial system has been a key pillar of the post-World War II international order, and any attempt to undermine this dominance could threaten global economic stability.
Data indicates that global reserves in U.S. dollars have significantly declined over the past few decades, dropping from approximately 70% to 58%, signaling that the global financial system has already begun to slowly move away from the dollar. This shift paves the way for initiatives like Putin’s plan to drive further change.
Shifts in the Russian Economy
In a speech last September, Putin confirmed that Russia had already begun reducing its reliance on the dollar in its international trade transactions. He noted that Russia now conducts trade with an increasing number of countries using national currencies instead of the dollar. This move was a direct response to the economic sanctions imposed on Russia, which, according to Putin, aim to stifle the Russian economy.
Putin did not stop there but went on to assert that the United States, with its current policies, is inflicting harm on itself and its economy. He described U.S. policy as “self-destructive,” saying that the U.S. is “cutting the branch it sits on,” in reference to how the U.S., by imposing sanctions and using the dollar as a political tool, is destroying global trust in the dollar, which will eventually lead to the collapse of the economic system that it relies on.
East-West Division and Its Economic Implications
Putin’s recent statements reflect Russia’s frustration with Western policies that Moscow perceives as a direct threat to its economic and political independence. Putin views new economic alliances like BRICS as an opportunity to create a new global order in which the Global South has a greater role and influence over economic and political decisions on the world stage.
The push toward creating an alternative financial system mirrors a larger shift in international relations, where many countries in the Global South are increasingly eager to break free from Western dominance over the global economy. These countries now view BRICS, led by Russia and China, as a platform to develop a more equitable global economic system.
International Reactions
This Russian initiative is expected to spark significant reactions from the West, particularly the U.S., which has long benefited from the centrality of the dollar in the global financial system. Some estimates suggest that any effort to undermine the dollar’s dominance could lead to major economic and political tensions, especially if BRICS nations successfully attract more developing countries into the new financial system.
While the plan is still in its early stages, its adoption by BRICS could trigger a significant shift in the balance of global economic power. Western countries will face a formidable challenge in countering this new threat, as the diminishing role of the dollar in the global financial system could weaken the West’s ability to impose effective economic sanctions and reduce its influence on the international stage.
The Future of the Global Economy
Regardless of the potential outcomes of this initiative, it clearly indicates that the global financial system is entering a new phase of transformation. The dollar is no longer the sole currency that the world relies on, and with growing experiments in digital currencies and new economic blocs, it appears that the world is moving toward a more diversified financial system.
The plan Putin is set to present to BRICS may be part of these broader transformations, but it is certainly not the last. The coming days may bring further developments in this area, and the world’s eyes will be on the BRICS summit in Kazan to see whether this initiative will succeed in changing the global financial landscape or face significant challenges from the West.
