Dollar Loses face
The world economy has fundamentally altered, Brazil has returned to Lula and de-dollarisation is a global trend, especially amongst the BRICS and the Global South
UPDATE: The Long Mekong Weekend edition investigates the global economy and the shift of wealth and power to Asia and the Global South. Brazil has returned to the safe hands of Lula (Luiz Inácio Lula da Silva) and will be seeking to strengthen the Global South, BRICS and de-dollarisation. The Long Mekong Weekend provides reading from China, ASEAN, West Asia and the US on what a BRICS currency might look like, de-dollarisation efforts and the structural problems in trying to de-throne the dollar. Meanwhile the Long Mekong Weekend stopped using cash a long time ago and digital wallets, cross-border transactions and CBDC (central bank digital currencies) ensure that Washington’s grip on global finance is being loosened as it continues to make one poor economic decision after another and that included weaponisation of the dollar -oops!
As 2022 comes to a close we can recap many historic milestones of the year, like the Earth’s population hitting 8 billion and the global economy surpassing $100 trillion.
In this chart, we visualise the world’s GDP using data from the IMF, showcasing the biggest economies and the share of global economic activity that they make up.
Gross Domestic Product (GDP) is a broad indicator of the economic activity within a country. It measures the total value of economic output—goods and services—produced within a given time frame by both the private and public sectors.
The GDP Heavyweights
The global economy can be thought of as a pie, with the size of each slice representing the share of global GDP contributed by each country. Currently, the largest slices of the pie are held by the United States, China, Japan, Germany, and India, which together account for more than half of global GDP.
Here’s a look at every country’s share of the world’s $101.6 trillion economy:
Just five countries make up more than half of the world’s entire GDP in 2022: the U.S., China, Japan, India, and Germany. Interestingly, India replaced the UK this year as a top five economy.
Adding on another five countries (the top 10) makes up 66% of the global economy, and the top 25 countries comprise 84% of global GDP.
The World’s Smallest Economies
The rest of the world — the remaining 167 nations — make up 16% of global GDP. Many of the smallest economies are islands located in Oceania.
Read the full story here.
What did the Brazilian President-elect say about China, the U.S., LatAm, and BRICS in mid-2021
Lula will take office on Jan 1, 2023. Here are the details of his thoughts from an interview with Eric X. Li, which remains little noticed in English.China just announced that Vice President Wang Qishan would, as the special envoy of President Xi Jinping, lead a Chinese delegation, to attend the inauguration ceremony of Luiz Inácio Lula da Silva, or Lula.
Before the full translation of the Chinese-language transcript below, where Eric X. Li didn’t actually say much. Here is a summary of Lula’s words:
Lula said the United States government “participate(d) in the lawsuit against me,” which put him in prison to “destroy the regulations we had stipulated for supervising Brazilian oil companies” and prevent “Brazil (from) playing an increasingly important role on the world stage.”
In other words, Lula said the U.S., having constantly interfered in Latin American politics, “fears losing its leading position as the world’s police.”
Lula said, “that is exactly what I have rebelled against. Brazil is a sovereign state, and it has the right to decide its policies and economy and determine its international relations as China does. That’s why we cannot accept the roles the United States tries to impose on all human beings to become the world police.”
Latin America can't be born poor, and it should not be natural that every time a country in Latin America starts to grow, there's a coup. And it is unacceptable that in every coup, people from America and American ambassadors would be involved.
But he also clarified he sought no hostilities toward the U.S.
I am not saying that we need to be unfriendly with the United States. We should maintain a good relationship with the U.S. And I want to maintain the same relationship with China, Russia, Nigeria, Angola, South Africa, and Malaysia.
Lula found the power structure of the international community was stacked against the developing countries, and “the rich countries were not used to making room for less developed countries,” citing his experience from the 2009 G20 London Summit; the difficulty of “changing the rules of the International Monetary Fund (IMF) and the World Bank,” which turned out “very difficult because the power is in the hands of Europe and the US;” and even the International Olympic Committee.
So the way the world is organized is truly absurd. For example, the IMF is a multilateral organization founded to solve problems among countries. But when a crisis takes place in rich countries, the IMF is of no importance. When it happened in a poor country, the IMF would interfere, just like what is happening in Argentina now.
Lula called for reforming the United Nations Security Council and “BRICS and South-South cooperation to balance world geopolitics.” He is hopeful for BRICS
I am ambitious that, either viewed from the business or financial perspective, BRICS, together with our developed bank and partnership between the universities made through the BRICS, could change human history and provide opportunities unavailable for developing countries in the past five hundred years.
I believe Brazil would return with stronger power and help the BRICS Bank become an exemplar for other southern countries and a development bank for developing countries. That is exactly what we want.
(the BRICS Bank is now known as the New Development Bank)
Lula observed a return to governments of the left-wing across Latin America.
….recovering from the things that happened in the past six or seven years in Latin America. Back then, massive loss and attrition to society occurred due to the increasing power of the right wings. And people gradually find that it is unworkable to practice politics through hatred, just like what is now happening in Brazil. Politics should be dealt with more peacefully and calmly.
Luckily, the left-wing government has been in charge of Bolivia and Argentina. In Chile, people voted for the constitutional convention, and the right-wing government has gradually been marginalized. Now, we have seen what happened in Peru, and I believe that the same thing will happen in Brazil.
Read the full translation here.
Creating a BRICS Reserve Currency: A Long-term Project
Russia and other BRICS members – Brazil, India, China and South Africa – each have different approaches to making changes to establish an alternative non-dollar-denominated international financial system. Russia’s motives are tied to the growing pressure on its capital account following its war on Ukraine that has led to tougher international sanctions.
For the other BRICS – and countries aspiring to join the group including Egypt, Turkey, Algeria and, more recently, Saudi Arabia – de-dollarisation is a much less urgent goal. India has a closer relationship with the US than with some of the other BRICS members. Brazil and South Africa are less vulnerable to US sanctions.
China and the US remain dependent on each other for trade – China was the US’s third largest trading partner in 2022 January-September after Canada and Mexico – diminishing the logic for third countries to abandon the dollar.
Western measures to isolate Russia also complicate closer co-operation within the BRICS+ countries because of the risk to others of secondary sanctions.
In addition, not all BRICS+ countries have the necessary financial resources or political incentives to invest in the creation of their own non-dollar market infrastructures. Indeed, the most powerful Member States might promote the internationalisation of their own currencies at the expense of others.
Renminbi, Not Rouble, Natural but Limited Beneficiary of De-dollarisation.
Read the full article here.
Can BRICS De-dollarize the Global Financial System?
Existing scholarship has not systematically examined BRICS (Brazil-Russia-India-China-South Africa) as a rising power de-dollarization coalition, despite the group developing multiple de-dollarization initiatives to reduce currency risk and bypass US sanctions.
To fill this gap, this study develops a 'Pathways to De-dollarization' framework and applies it to analyze the institutional and market mechanisms that BRICS countries have created at the BRICS, sub-BRICS, and BRICS Plus levels. This framework identifies the leaders and followers of the BRICS de-dollarization coalition, assesses its robustness, and discerns how BRICS mobilizes other stakeholders. The authors employ process tracing, content analysis, semi-structured interviews, archival research, and statistical analysis of quantitative market data to analyze BRICS activities during 2009-2021. They find that BRICS' coalitional de-dollarisation initiatives have established critical infrastructure for a prospective alternative non-dollar global financial system.
Download the full article here.
Creating a BRICS Reserve Currency: A Long-term Project Despite Russia’s De-dollarisation Strategy
Russia and other BRICS members – Brazil, India, China and South Africa – each have different approaches to making changes to establish an alternative non-dollar-denominated international financial system. Russia’s motives are tied to the growing pressure on its capital account following its full-scale war on Ukraine that has led to tougher international sanctions.
For the other BRICS – and countries aspiring to join the group including Egypt, Turkey, Algeria and, more recently, Saudi Arabia – de-dollarisation is a much less urgent goal. India has a closer relationship with the US than with some of the other BRICS members. Brazil and South Africa are less vulnerable to US sanctions.
China and the US remain dependent on each other for trade – China was the US’s third largest trading partner in 2022 January-September after Canada and Mexico – diminishing the logic for third countries to abandon the dollar.
Western measures to isolate Russia also complicate closer co-operation within the BRICS+ countries because of the risk to others of secondary sanctions.
In addition, not all BRICS+ countries have the necessary financial resources or political incentives to invest in the creation of their own non-dollar market infrastructures. Indeed, the most powerful Member States might promote the internationalisation of their own currencies at the expense of others.
Read the full article here.
Global coordination of de-dollarization ought to be strengthened
Egypt will develop a new currency indicator partly to reframe the idea that the Egyptian pound should be pegged to the US dollar, the country's central bank governor said, according to Reuters.
As a strong dollar has become a hazard for global economy, economies across the world have realized the urgency of de-dollarization. Many countries have started their own exploration according to their national condition to tackle the impact caused by the US' highly reckless and irresponsible financial policy.
The new currency indicator of Egypt is a helpful trial among countries aiming for de-dollarization.
In order to tackle the spillover impacts from the US' tightened monetary policy on other economies, many countries across the world have started their de-dollarization exploration in ways including using bilateral and multilateral currency agreements to settle transactions in international trade, promoting the diversification of foreign exchange reserves, and reducing US Treasury holdings.
De-dollarization is not a voluntary choice made by countries such as Egypt, but a forced response to the "weaponization" of the dollar. The strong US dollar policy is exacerbating serious inflation, currency devaluation and capital outflow in developing countries. To avoid being dragged into a crisis, de-dollarisation has become an increasing priority for those nations.
Read the full article here.
China Is Quietly Trying to Dethrone the Dollar
Regional groups and small banks are helping insulate Beijing against sanctions.
At their recent summit in Uzbekistan, members of the Shanghai Cooperation Organisation (SCO)—a prominent regional organization led by China and Russia—agreed on a road map to expanding trade in local currencies. A road map for using local currencies in trade and developing alternative payment and settlement systems has been part of the SCO’s economic plan for years.
This agenda is in line with individual policies on the part of the group’s most prominent members, including Russia’s attempt to cushion the blow of Western sanctions, China’s deteriorating relations with the United States, India’s use of nondollar currencies in its trade with Russia, and Iran’s recent proposal for a single SCO currency. Chinese President Xi Jinping proposed to address development deficits through regional integration, especially by expanding the shares of local currency settlements, strengthening the development of local-currency cross-border payment and settlement systems, and promoting the establishment of an SCO Development Bank.
Read the full article here.
What does the WEAPONISATION of global finance mean for US dollar dominance?
US$300 billion is a big number, even for a country the size of Russia. The United States and its allies froze roughly that amount belonging to Russia’s central bank’s foreign currency reserves (equivalent to about 35% of Russian GDP), froze assets of a wide range of individuals and Russian banks, and severely limited Russia’s access to the SWIFT payment system. We have seen such measures selectively applied to countries such as Afghanistan, Iran, and Venezuela in the past, but this sanctions package is unprecedented, not only due to its scope and magnitude but also because it targets a major world power. The action represents a tectonic shift from the policy of neutrality, signaling to the world that each country’s access to their reserves could become contingent on their foreign policy. In response, Russia has sought to rely on non-dollar payment systems and to exhaust non-dollar reserve assets, joining Iran and other countries sanctioned by the United States in pursuing alternatives.
Read the full article here.