In recent years, the BRICS de-dollarization has gained momentum, with its member countries exploring alternative currencies, such as the yuan and ruble, for international trade. This article explores the BRICS member countries’ de-dollarization efforts and what role Bitcoin might play in a world where the US dollar is no longer king.
The Tale of the US Dollar
The US dollar has been the world’s reserve currency for 79 years. Its prominence in international trade was solidified by the Bretton Woods Agreement in 1944, which linked its value to gold and pegged other currencies to its worth.
Back then, the U.S. controlled over a 50% slice of the world’s gold reserves, and other countries trusted the dollar’s stability. However, the dollar’s value plummeted in the 1970s after the U.S. ended the convertibility of dollars to gold. The Federal Reserve tried to preserve the currency’s value but increasing the money supply caused the dollar to lose two-thirds of its worth in the following decade.
In response to the global financial crisis of 2007, China created the China International Payment System in the same year. This allowed cross-border payments to be settled in yuan, and in 2010, the country bilaterally signed a currency swap agreement with neighboring Russia.
The event eventually led to the formation of the BRICS countries – composed of Brazil, Russia, India, China, and South Africa – which then established the New Development Bank in 2014. The institution aimed to provide alternative financing sources for developing countries and reduce their reliance on the dollar. Along the way, the European Union also launched a Special Purpose Vehicle (SPV) to facilitate trade with Iran in euros to allow the Arab nation to circumvent US sanctions.
The U.S. Treasury’s once-trusted holdings have become a “geopolitical hot potato”, as CryptoSlate has put it, and demand for treasuries has dropped by around 6% over the past year. Almost every major country has sold off its treasury holdings in response to rising interest rates, which make these bonds less profitable. Foreign holders of U.S. treasuries have been selling off their holdings to move away from dependence on the dollar and move to other currencies such as the yuan and ruble.
Bitcoin and De-Dollarization
The trend brought forth by the BRICS de-dollarization has brought forth a new dimension to the discussion around Bitcoin’s role in the global economy. While some see Bitcoin as a viable alternative to the dollar, others argue that the digital asset’s volatile nature and lack of widespread adoption make it a risky investment.
However, the increasing interest in Bitcoin as a hedge against inflation and economic instability has led many to reconsider its potential in a world where the dollar is no longer the dominant reserve currency. If countries continue to explore alternative currencies, Bitcoin’s decentralized infrastructure and limited supply could make it an attractive option for investors seeking stability and security.
Moreover, as more countries seek to bypass U.S. sanctions and reduce their reliance on the dollar, Bitcoin’s potential as a global currency may become more evident. The digital asset’s ability to facilitate cross-border transactions in its decentralized state without the need for intermediaries or government oversight could make it an appealing option for countries seeking to distance themselves from the U.S. financial system.
But then again, the road ahead for Bitcoin remains uncertain. Its regulatory environment is still in flux, and its adoption by mainstream investors and businesses remains limited. Furthermore, the emergence of central bank digital currencies (CBDCs) could pose a threat to Bitcoin’s potential as a global currency.
The world’s move away from the dollar will be a gradual process. Still, the trend of de-dollarization has gained momentum in recent years, with countries seeking to explore alternative currencies. Bitcoin’s potential to replace the dollar is a possibility, but it’s uncertain whether it can become a widely accepted global currency. The digital asset’s role in the global economy depends on its ability to provide a stable store of value and overcome the challenges of regulatory scrutiny and adoption.
Giancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines.
In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013.
Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc., the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO’s core management team, contributing to strategic planning and business development endeavors.