The Dollar's Role as a Geopolitical Tool Fuels the Rise of Alternative Payment Systems Among BRICS Nations

The U.S. dollar has long served as a powerful instrument to advance American geopolitical interests, driving some nations to explore new methods for conducting global payments outside the traditional dollar-dominated system. Recently, Russian President Vladimir Putin showcased a facsimile of what could be a proposed BRICS currency, in what is seen as one of the most visible statements of the bloc’s skepticism toward the U.S. dollar.

The dollar’s use in international policy has historically benefited U.S. interests, but BRICS nations (Brazil, Russia, India, China, and South Africa) are now seeking to regain economic sovereignty by gradually reducing the dollar’s role in their international trade. The facsimile presented by Putin during the recent annual BRICS summit in Kazan, Russia (October 22–24), displayed the flags of the five founding nations, suggesting unity toward a potential common currency.

While experts are skeptical that BRICS will soon replace individual currencies like the rupee, renminbi, rand, or ruble with a single physical currency, a digital central bank digital currency (CBDC) could be a more practical step toward weakening dollar dominance. A state-backed digital currency would provide a unified yet decentralized payment system, potentially reducing dependence on the dollar in global commerce and transactions.

Strategies of the BRICS Bloc to Reduce Dollar Dependence

Before CBDCs, There Was Gold

In recent years, several countries under heavy U.S. economic sanctions, including China, Russia, Iran, and Turkey, have increasingly reassessed the dollar’s central role in global payments and initiated steps to “de-dollarize” their trade relationships. According to a new study by the ING think tank, the BRICS countries have developed their most promising de-dollarization strategies through foreign currency reserves and fuel trading.

Since 2008, the BRICS alliance has amassed gold as an alternative to dollar-based central bank reserves, with gold reserves rising from 5% to 22% of their total reserves between 2008 and 2021. During this period, BRICS central banks acquired a net 6,600 tons of gold, surpassing the global average increase of 5,500 tons. Yet, gold remains only 10% of BRICS countries' central bank reserves—below the global average of 20%—indicating potential room for further accumulation.

ING’s findings align with recent data showing central banks in developing countries purchasing record amounts of gold, which has contributed to rising prices. China alone acquired 225 tons in the past 15 months, and net central bank gold purchases for the first nine months of 2024 reached 800 tons, up 14% over the same period last year. Meanwhile, the share of central bank foreign reserves denominated in dollars fell to 58.2% this year, the lowest level since 1995.

Fuel Trade: A Key Focus for De-dollarization

Global trade, particularly in fuel, is another crucial front in the BRICS de-dollarization strategy. The BRICS bloc accounts for 20% of global trade flows—about $10 trillion annually—and intra-BRICS trade is increasingly conducted in local currencies. According to ING, the share of BRICS countries’ revenue in total trade within the bloc has risen to 28% in 2023, compared to 22% in 2008.

Progress is especially apparent in emerging-market fuel trade, where BRICS countries’ share rose from 20% to 37% in 2023. ING highlights this sector as having the strongest potential for the bloc to limit dollar reliance in international trade. BRICS countries have already made significant strides in bypassing the dollar in cross-border settlements and global debt markets.

The Role of CBDCs in the Path Toward De-dollarization

Central bank digital currencies could be a strategic tool in the BRICS’ long-term mission to limit the dollar's dominance in global trade. By leveraging CBDCs, BRICS countries would achieve greater independence over financial transactions, operating through an interoperable distributed ledger (DLT) or blockchain system. A recent study by Russia’s finance ministry, the Bank of Russia, and legal firm Yukov and Partners, released before the Kazan BRICS summit, suggests that DLT-based transactions could cost only 1-2% of traditional cross-border transaction costs.

This research estimates that if half of all cross-border transactions were conducted via state-issued digital currencies on a blockchain system, BRICS countries could save $15 billion annually. CBDCs would enable direct transactions between currencies, eliminating the need for dollar-based intermediaries and bypassing U.S. banks. This system could also streamline “delivery versus payment” for securities.

Jack Saracco, co-founder of Ping, a platform allowing remote workers to convert payments to cryptocurrency or local currency, believes BRICS CBDCs could help users send “genuine digital dollars” across borders. Saracco suggests that CBDCs could replicate the role of private stablecoins like USDT or USDC, which are widely used in regions like Latin America for dollarized transactions.

A Gradual Process Toward De-dollarization

The shift from dollar-dominated trade will not happen overnight. Currently, many nations are exploring the potential of government-issued digital currencies. The Atlantic Council’s CBDC tracker notes that 134 countries or monetary unions—accounting for 98% of global GDP—are actively investigating state-backed cryptocurrencies, a significant increase from just 35 in 2020. Of these, 66 nations are in advanced stages (development, pilot testing, or launching). So far, three countries—the Bahamas, Jamaica, and Nigeria—have fully launched CBDCs.

Wholesale CBDCs, including those from BRICS or other countries, will not immediately dethrone the dollar. The dollar’s role in global payments will persist for the foreseeable future, says ING analyst Brosens. While the business model for wholesale CBDC platforms has clarified over years of research, the primary challenges ahead are organizational rather than technical.

The critical hurdle is organizing and governing a unified platform, engaging both central and commercial banks. Central banks must be willing to authorize these platforms and consider issuing reserves on them, or at least allow tokens fully backed by their reserves to circulate. Commercial banks must also commit liquidity to these platforms. Additionally, a robust legal framework must be developed and agreed upon by all participants.

For these reasons, Brosens believes CBDC-inspired de-dollarization will take time to achieve. However, once CBDCs become widely implemented, the impact on the dollar's global role in payments could be substantial.

The Unique Influence of the Dollar: A Challenge for the BRICS

Kurland, CEO of DYOR Labs, acknowledges that challenging the dollar’s dominance is a formidable task. The U.S. dollar enjoys high levels of global trust and stability, backed by the world’s largest economy, which is difficult for other currencies to replicate. The dollar also benefits from unparalleled liquidity in global financial markets and a well-established transaction infrastructure, which creates a network effect hard to displace.

What is BRICS?

Founded in 2009, BRICS is an informal bloc comprising Brazil, Russia, India, China, and South Africa. Recently, four additional nations—Egypt, Ethiopia, Iran, and the UAE—were invited to join, increasing the bloc’s economic and demographic influence. Together, BRICS members represent 37% of global GDP and 44% of the world’s population. An additional 30 countries, including Bahrain, Belarus, Cuba, Pakistan, Turkey, Thailand, and Zimbabwe, have applied for membership, representing another 5% of global GDP and 8% of the world’s population.

Initially, BRICS focused on building trade relations between members without relying on the dollar, a priority that has only grown as de-dollarization gains traction within the block.