In search of financial autonomy

The 'BRICS Plus' countries are laying the groundwork for a more balanced global financial system

Editor's note: As global governance undergoes profound changes, the role of the BRICS Plus mechanism in fostering a more equitable and inclusive international order has become increasingly significant. To explore its impact, the challenges it faces, and its future prospects, China Watch, a think tank powered by China Daily, is launching the BRICS Views column, bringing together scholars, policymakers and industry leaders for in-depth discussions on issues of concern to the grouping.

The "BRICS Plus" grouping — Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Saudi Arabia, Iran, the United Arab Emirates and Indonesia — has emerged as a pivotal actor in the global movement toward de-dollarization. This strategic shift seeks to reduce dependence on the US dollar in international trade, investments and monetary reserves. Far from being an antagonistic move against the United States, it represents a pragmatic effort by the BRICS nations to assert financial autonomy and protect their economies from external shocks.

The US dollar accounted for about 58 percent of global foreign currency reserves and 88 percent of the daily foreign exchange market turnover as of 2023. However, this dominance creates vulnerabilities for countries whose economies are closely tied to its performance.

The New Development Bank, established in 2015 with an initial capital of $50 billion, represents a concrete institutional response to the dollar dominance. By 2023, the NDB had approved over $30 billion in funding for infrastructure and sustainable development projects across BRICS nations, with approximately 30 percent of these funds disbursed in nondollar currencies. Further, the Contingent Reserve Arrangement, a $100 billion financial safety net established in 2014, provides liquidity support in nondollar currencies during financial crises. This mechanism helps BRICS nations mitigate the risks associated with dollar volatility and potential capital flight.

Bilateral trade settlements have seen significant shifts away from the dollar. For instance, the share of the US dollar in Russia-China bilateral trade settlement plummeted from nearly 90 percent in 2015 to 46 percent in the first half of 2020, while the use of local currencies in India-Russia bilateral trade surged from 6 percent to 30 percent between 2014 and 2019. Similarly, the renminbi's usage in South African trade grew by 65 percent in 2016 alone. These changes reflect a deliberate strategy to reduce exposure to dollar fluctuations and enhance trade stability.

BRICS nations have also developed alternative payment systems to bypass traditional US-dominated infrastructure. China's Cross-Border Interbank Payment System and Russia's System for Transfer of Financial Messages offer alternatives to SWIFT, while India's Rupee-based trade settlement mechanism challenges the US dollar's dominance in regional trade. These systems enhance financial sovereignty by providing secure, independent channels for international transactions.

The five initial members collectively held over $4.5 trillion in foreign exchange reserves in 2024. By diversifying these reserves into alternative currencies and assets — such as the euro, yen and gold — these BRICS countries aim to enhance financial stability. Gold reserves have seen particularly dramatic increases: Russia's gold reserves grew from 1,250 metric tons in July 2015 to over 2,350 tons by December 2023, while China's reported reserves increased from 1,658 tons in June 2015 to approximately 2,235 tons by December 2023.

Developing economies face significant risks when their financial systems are closely tied to the US dollar. Changes in US interest rates, quantitative easing, or other monetary policies can trigger capital flows, currency volatility, and economic instability in dollar-dependent economies. By reducing dollar dependence, Global South nations can insulate themselves from these external shocks and maintain greater control over their domestic economic policies. US sanctions have become a powerful tool of economic coercion, particularly against countries such as Russia, Iran and Venezuela. De-dollarization efforts provide a mechanism for these nations to conduct international trade and finance outside the reach of US sanctions. For example, Russia has significantly reduced its dollar holdings, with the share of US dollars in its international reserves falling from about 43 percent in March 2018 to around 10 percent by 2023. This strategic shift has allowed Russia to maintain economic activity despite Western sanctions.

Financial sovereignty represents a fundamental aspect of national independence. When countries rely heavily on the US dollar, they effectively cede control over key aspects of their monetary policy to the US Federal Reserve. De-dollarization enables nations to reclaim this autonomy, making monetary policy decisions based on domestic economic needs rather than external currency fluctuations. For developing economies, exchange rate volatility can undermine trade competitiveness, increase debt servicing costs, and contribute to inflationary pressures. By conducting trade in local currencies or other stable currencies, BRICS nations can reduce these risks and create more predictable economic environments for businesses and consumers.

The current global financial architecture disproportionately benefits developed economies, particularly the US. By creating alternative financial institutions and mechanisms, BRICS nations contribute to a more multipolar system where multiple currencies and financial architectures coexist. This evolution could lead to greater fairness and representation for developing economies in global financial governance. Diversifying currency holdings and trade settlements helps nations build more resilient economies.

Despite these advances, challenges remain in establishing a fully integrated BRICS financial architecture. The heterogeneity of economic structures, political priorities, and developmental stages among member countries complicates coordination. Furthermore, the US dollar retains its dominance in global finance, and transitioning to alternative systems requires significant investment and institutional development. Some critics argue that de-dollarization could lead to increased transaction costs and complexity in global trade. Others express concerns about the potential for new dominant currencies to emerge, simply replacing the dollar with another hegemonic currency. However, BRICS' approach emphasizes a diversified strategy rather than replacing the dollar with a single alternative currency.

By creating alternative financial institutions and instruments, BRICS nations are laying the groundwork for a more balanced global financial system. This shift could potentially reduce the effectiveness of the US' politically motivated unilateral sanctions, enhance financial sovereignty for developing economies, and promote greater stability in international monetary relations. As BRICS continues to expand its membership, the movement toward de-dollarization may gain additional momentum. The creation of a BRICS currency or expanded use of local currencies in trade could further challenge the established financial order. Additionally, technological innovations such as digital currencies and blockchain technology offer new avenues for global transactions without dollar intermediation.

De-dollarization represents not a threat to the global economic system but an opportunity to create a more resilient and equitable architecture that respects the sovereign economic interests of all nations. For the Global South, this movement is fundamentally about protecting domestic economies from external shocks, asserting financial autonomy, and participating in a more multipolar world order. The evolution toward a more diversified global financial system will likely be gradual but could ultimately lead to greater stability and fairness in international economic relations.

The author is a PhD student at Peking University, ex-state minister of planning and development of Ethiopia, and vice-chairman and Africa chapter president of the World Rural Tourism Council. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.