Brazilian scholar: “De-dollarization” is the general trend, but it is not easy

Brazilian scholar: “De-dollarization” is the general trend, but it is not easy

Guide : In recent years, there have been structural changes (7.2510, 0.0030, 0.04%)the international political and economic landscape, the hegemony of the United States has been challenged , the center of gravity of the world economy has “shifted eastward”, and the status of developing countries　　in global governance has been improved . Increased role in international finance. The BRICS countries are working hard to create a new international currency mechanism, promote the “de-dollarization” of international trade, and ensure financial stability and currency security.

Looking back at the history of the 20th century, in 1901, the United States had become the world’s largest economy, but it was not until the end of World War II in 1945 that it officially established its hegemony in the world. During the nearly half century between, the evolution of the international order was mainly marked by the following three major events: the decline of British political, economic and military power, which eventually led to the military conflicts of the two world wars, and the demise of Asia and Africa. Acceleration of the colonization process.

After the Bretton Woods Conference in 1944, the U.S. dollar became the main international settlement currency, and the United States thus obtained a key tool to control global finance. Since then, major international economic institutions such as the International Monetary Fund, the World Bank, and the World Trade Organization have developed with the strong support of the US government. Notably, the US has veto power over major issues at the IMF and World Bank. As for the WTO, the organization is still “paralyzed” because the United States obstructs the selection of new judges for the Appellate Body.

Before 1971, an ounce of gold was fixed at $35, but today it can be exchanged for about $2,000. Although the fixed exchange rate system is a thing of the past, and the exchange rate of the dollar against gold has also fallen sharply, the dollar still occupies an important position in the international system. Even today, the dollar’s share of global foreign exchange reserves has fallen sharply, and most commercial transactions are still settled in dollars.

Over the past 80 years, the hegemony of the United States has been continuously challenged, and three key structural changes have occurred in the international community. First, the economic axis of the Atlantic Ocean is declining, and the center of gravity of world economic activities is rapidly shifting to the Eurasian and “Indo-Pacific” axes.

Second, the status of developing countries in global governance has been enhanced. With the end of colonialism, countries in the Global South regained their political independence and were able to choose their own development path, which has become increasingly important in the world political and economic order. The birth of international mechanisms such as the G20 reflects this new geopolitical and economic feature.

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From this perspective, the words of Brazilian President Lula are worth thinking about. “We can’t continue to rely on a currency that can only be printed by other countries. I hope the BRICS central banks can issue a new currency like the euro. We can do it,” he said during a visit to China in April. On May 30, at the last meeting of the G7 summit held in Hiroshima, Japan, Lula reiterated this view, emphasizing the importance of establishing a currency mechanism that is not affected by a certain country’s interests.

Image source: Visual China

To cope with the above structural changes, it is necessary to create a new international monetary arrangement. Currencies must reflect the value of goods and the relative changes that result from different levels of productivity across countries. In addition, it is necessary to strengthen the financial data transmission system so that it is not subject to unilateral sanctions by any country.

Creating a single currency for different countries is not an easy task. As we all know, the birth of the euro took decades: from the establishment of the European Payment Union in July 1950, and the signing of the “European Payment Agreement” in September of the same year; to the establishment of the European Monetary System in 1979, the design of a floating currency among member states mechanism; and then in 1991, the “Maastricht Treaty” came out, stipulating that the first batch of euro banknotes would be issued on January 1, 2002.

However, even after the euro officially came out, its development process can still be said to be full of disasters. For example, when Greece encountered an economic crisis from 2009 to 2012, the Greek parliament was forced to approve a number of austerity programs, exposing the problems of economic coordination among countries in the euro zone: Although everyone uses the euro as the currency in circulation, fiscal and budgetary policies are different. The balance-of-payments crisis and huge budget deficits facing Greece have also spread to Portugal, Spain, Italy and Ireland.

Image source: China Daily

As far as the BRICS countries are concerned, although all countries have common political interests and hope to get rid of the restrictions related to the use of the US dollar, it is still necessary to conduct long-term discussions and plan the various stages of implementing a common currency. The first step is to establish a BRICS contingency fund composed of member countries’ national currencies to create conditions for business transactions and provide financial support to countries experiencing balance of payments difficulties. The fund differs from the contingency reserve arrangement created by the BRICS countries in 2014, which is activated only in emergencies and in line with IMF guidelines.

The BRICS emergency fund should guarantee that member countries enjoy the freedom to conduct currency swaps according to their trade and financing needs. This is the first step in enhancing mutual trust, which is a necessary condition for implementing the new single currency system.

This step taken by the BRICS countries will be a major move to promote the adjustment of the “superstructure” of global governance to adapt to the new economic base generated by the rise of developing countries.

Image source: China Daily