In 2008, when the housing bubble burst and US markets crashed, a recession ensued—not just in the United States, but also around the world. Why? The power of the US dollar.
The 1944 Bretton Woods Conference created the International Monetary Fund (IMF) and the World Bank, establishing a global economic order. The conference placed the US dollar at the heart of this order and established it as the de facto global reserve currency. This means the US dollar is used internationally to cut down on transaction costs and exchange rate risk. Since commodities like oil and gold are priced in the reserve currency, countries must purchase and hold the US dollar to pay for them.
Even though the Bretton Woods agreement collapsed in the 1970s, the US dollar’s central role was reinforced when Saudi Arabia signed a deal with the United States to only export oil in dollars. In exchange, it received US military support and supplies. The term “petrodollar” is derived from this deal and refers to US dollars used to purchase oil from an oil-exporting nation. The petrodollar has maintained the US dollar’s role as the premier global currency ever since.
Currently, the BRICS coalition—formed by Brazil, Russia, India, China, and South Africa in response to the economic devastation of 2009—is considering creating a new global reserve currency in an attempt to further position the world economy away from the West. As BRICS’ economic power grows, Chinese President Xi Jinping recently invited nine countries, including Saudi Arabia, Argentina, Kazakhstan, Egypt, the United Arab Emirates, Indonesia, Nigeria, Senegal, and Thailand, to attend the annual BRICS summit in August and be considered for membership in the alliance. Russian President Vladimir Putin also stated that he backs Saudi Arabia’s entry into BRICS.
If Saudi Arabia joins BRICS and begins exporting oil in the new BRICS-sponsored currency, the role of the US dollar as the premier global currency would be undermined. Half a century on from the 1970s deal, Saudi Arabia is much less dependent on the United States than it once was. While the oil agreement has long aligned Saudi Arabia with US interests, recent diplomatic disputes, exacerbated by the high-profile murder of journalist Jamal Khashoggi, have hurt this partnership. This cooling of relations with the United States has led Saudi Arabia to explore other global partnerships, even recently agreeing to sell oil to China in exchange for Chinese currency, the yuan, marking a drastic shift away from the petrodollar.
Undermining the petrodollar and establishing a new reserve currency are not the only ways the BRICS coalition has sought to challenge American power. Its work industrializing much of the Global South presents a strong alternative to the current Western-led order. In 2014, BRICS launched the New Development Bank (NDB), an alternative to the Western-led World Economic Bank and IMF. The NDB has contributed funds to the Belt and Road Initiative, a Chinese global infrastructure and development strategy aiming to create economic growth and expand Chinese influence in more than 100 countries in Europe, Africa, Asia, the Middle East, and Latin America. In developing the Global South, the NDB and Belt and Road Initiative have produced a strong alternative to the IMF and World Bank, which had previously conditioned financial support for recipient countries on economic policy reforms.
A March 2023 article in the World Economic Forum discusses this alternative and the end of a US dollar-dominant world as countries shift toward new currencies: “We are leaving behind a US-led, unipolar world with the US dollar at the center and entering into a multipolar, deglobalized world where the dollar may not hold as much influence.” While a new BRICS-backed currency may not be a true threat to the hegemony of the US dollar, it is clear that many nations are looking for a new global leadership coalition. This should come as no surprise since BRICS nations account for 42 percent of the world’s population, but have less than 15 percent of the voting rights in the World Bank and the IMF.
BRICS’ economic partnership in the Global South increased their political influence in the region. China, in particular, continued to fund and facilitate development projects around the world while America turned inward during the Trump presidency, pulling out of many global alliances. During the coronavirus pandemic, the United States and Europe also did far less in their efforts to supply vaccines to the Global South than India and China did. Now, as the conflict in Ukraine rages, many countries in the Global South have abstained from condemning Russia’s invasion despite mounting political pressure from the West. As BRICS’ influence and demand for membership grows, so too does a challenge to the US-led international order. South African Ambassador and BRICS’ current chair Anil Sooklal recently stated that “the world [is] between orders… We believe we need to play a role in ensuring that we have a more equitable, inclusive, transparent, global architecture.” Even though BRICS’ growing coalition has remained absent from the front pages of American newspapers, it could represent the largest shift in the global balance of power in many decades. We should all be paying attention.