China and Russia are spearheading efforts to create a new financial order that could shift the balance of economic power away from the West. Both countries have found common ground in challenging the dominance of the U.S. dollar, primarily through the BRICS coalition (Brazil, Russia, India, China, and South Africa) and its recent expansion. These moves are part of a larger strategy aimed at developing an alternative payment and trade system that bypasses Western oversight and sanctions.
Why Are China and Russia Leading This Charge?
Russia, heavily sanctioned by the West following its 2022 invasion of Ukraine, has faced significant challenges in maintaining economic stability. Many of these sanctions have targeted Russia’s financial system, cutting it off from the SWIFT international payment messaging network. In response, Russia is determined to reduce its dependency on the U.S. dollar and develop an alternative payment infrastructure.
China, while not directly affected by the sanctions, shares similar interests with Russia. Chinese President Xi Jinping sees the dominance of the U.S. dollar as a vulnerability and an obstacle to China’s global ambitions. In addition, China’s trade ties with Russia have strengthened significantly since the Ukraine conflict, giving Beijing both an economic and strategic stake in reshaping the global financial system.
The Expansion of BRICS and its Role
The BRICS group has expanded to include Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. With this enlargement, the group now covers over 40% of the world’s population and accounts for more than a quarter of global GDP. This expansion has provided a significant boost to efforts aimed at challenging the current U.S.-led financial system. BRICS members, many of whom have faced economic pressures from the West, share a common interest in creating a more balanced and inclusive global financial architecture.
At the heart of these efforts is the BRICS Pay system—a decentralized payment network intended to provide member nations with alternatives to SWIFT and the U.S. dollar. This system is designed to facilitate faster and cheaper cross-border transactions and reduce exposure to Western sanctions. Additionally, Russia has proposed a BRICS reinsurance company to ensure uninterrupted trade, especially in the face of Western financial constraints.
Measures Being Taken to Challenge the Dollar
China and Russia, along with their BRICS partners, are taking several concrete steps to build this new financial architecture:
- BRICS Pay: This is a payment system currently under development by the BRICS countries. Similar to Europe’s SWIFT system, BRICS Pay aims to streamline trade and transactions among member nations by enabling payments in local currencies rather than relying on the U.S. dollar.
- De-dollarization Initiatives: Both Russia and China have been vocal about reducing their dependency on the dollar. This involves promoting the use of local currencies in trade between BRICS members and other countries. For example, China and Russia have been conducting trade in yuan and rubles rather than dollars.
- Cryptocurrency Development: Russia is working on creating a cryptocurrency that could provide an alternative means of payment beyond the control of Western sanctions. The idea is that this decentralized form of currency could allow for more secure and private transactions.
- National Bank Networks: Moscow is advocating for the establishment of national commercial banks linked within BRICS, allowing these banks to bypass Western financial restrictions. This system would connect central banks from different countries to facilitate trade without converting local currencies into U.S. dollars.
- Reinsurance Mechanisms: Russia is also proposing a BRICS reinsurance company to mitigate the risk of Western firms refusing to insure critical trade goods, thus protecting essential supply chains among BRICS members.
Who Is Being Drawn into This Initiative?
Aside from the founding BRICS members, several countries have expressed interest in joining the initiative. Turkey, Malaysia, and Zimbabwe are among the nations considering aligning with BRICS. Even countries with strong ties to the West, such as the UAE and Egypt, are showing interest, motivated by the desire for economic diversification and independence from the dollar-dominated financial system.
The Likely Impact on the U.S. and the West
The implications of a successful shift away from the U.S. dollar could be profound. The dollar’s dominance in international trade and as the world’s reserve currency has been a pillar of U.S. economic power for decades. A viable alternative payment system could reduce global reliance on the dollar, making it harder for the U.S. to wield financial sanctions as an instrument of foreign policy.
However, there are hurdles. India, a key member of BRICS, remains hesitant to fully commit to a new monetary system that would challenge the U.S.-led order. Furthermore, many smaller BRICS members still depend heavily on trade with Western nations, complicating efforts to build a unified financial alternative.
In the long run, if China and Russia succeed in establishing a robust alternative payment system, it could accelerate the trend of de-dollarization. This would not only reduce U.S. influence globally but also open the door to a more multipolar financial landscape, where countries have greater freedom to operate outside of Western economic dominance.
Conclusion
China and Russia’s efforts to reshape global trade and payment systems represent a direct challenge to the existing Western-led financial order. The measures being taken through BRICS, including the creation of BRICS Pay and alternative reinsurance mechanisms, reflect the growing desire among emerging economies to diversify their financial dependencies. While these initiatives are still in their early stages, they signal a shifting world where the U.S. dollar’s dominance may no longer be as secure as it once was.
ACZ Editor: The threat to the U.S. and dollar is intentional, the goal being to lessen U.S. economic influence in the world. It would also be a major blow since the ubiquity of the U.S. dollar provides a buffer against inflation. Removal of this buffer would be a huge blow to our economy, in additional to the loss of influence. But our leadership seems to be oblivious.
