The U.S. pressed economic sanctions against BRICS member Russia in February 2022 for invading and waging war against its neighboring country, Ukraine. Similarly, the U.S. had pressed sanctions against the new BRICS member Iran for its role in supporting terrorism around the world. The sanctions brought down Russia and Iran’s economies leading them to rely on other developing countries and use local currencies for trade.
U.S. Treasury Secretary Janet Yellen confirmed that the sanctions are what led BRICS to challenge the dollar. The White House’s move might have backfired as developing countries are forging partnerships in fear of U.S. sanctions. The development is leading to ideas of alienating the U.S. dollar and promoting local currencies for cross-border transactions.
BRICS Takes on the US Dollar Despite Sanctions
BRICS nations are already challenging the U.S. dollar despite two of its members being placed under economic sanctions. The alliance is looking to topple the Western hegemony and tilt the global financial power towards the East. The bloc is convincing a handful of developing countries to use local currencies and not the U.S. dollar for trade.
Many countries in Africa, Asia, and South America are following suit and considering ditching the US dollar. BRICS has evidently gained success despite sanctions being in place. When they are lifted eventually, the bloc will be able to impose more pressure.
The 11-nation bloc could seriously challenge the U.S. dollar and narrow the means to fund its deficit. BRICS could weaponize the oil markets and allow other countries to settle trade in their local currencies. The move would strengthen their native economies and provide a boost to businesses in the country.
If countries reduce their dependency on the dollar, the U.S. economy will be the first to tank. If America fails to export its inflation, then prices of all commodities could skyrocket. Heritage Foundation economist E. J. Antoni warned that the US could also reach hyperinflation if such a scenario arises.
“Losing reserve currency status would mean 70 years of deficits flooding back to the U.S. All competing with existing dollars held domestically to buy goods and services. That’s a hyperinflation scenario. It also means we could no longer export inflation abroad. So we’d bear the full cost of future inflation ourselves,” he said to the Daily Caller.