Despite looking to cut ties with the U.S. dollar, BRICS and other Asian countries don’t pay local currencies for oil and gas transactions. They prefer using the U.S. dollar for oil trade even after publicly kick-starting the de-dollarization initiative. BRICS mostly contradict their own statements and policies leading to the U.S. dollar reaping the benefits.
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One for example, India agreed to pay local currencies for oil trade with its BRICS counterpart Russia. When asked to pay the Chinese yuan, India backed out and preferred to settle oil payments in the U.S. dollar. BRICS members contradict themselves on the de-dollarization agenda and are poles apart from making the idea a reality.
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Why Do BRICS & Asian Countries Pay the U.S. Dollar For Oil?
BRICS and other Asian countries pay the U.S. dollar for oil because local currencies have no strong value. They falter if market conditions are not in their favor and cannot withstand the whips of the markets. Despite launching the de-dollarization initiative, the U.S. dollar has outperformed all Asian local currencies by a wide margin.
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Not to forget that before Saudi Arabia and BRICS discovered oil, the U.S. was the largest supplier during WW2. “The U.S. was originally one of the world’s biggest oil producers. We sometimes forget that,” said Brad Setser, a senior fellow at the Council on Foreign Relations to Market Place. “The Rockefeller empire was initially a domestic U.S. oil empire, and going into World War II, the U.S. was one of the world’s biggest oil exporters.”
“Saudi Arabia had enormous fiscal surpluses. It was earning far more money than it could ever hope to invest in its own economy,” he said. While BRICS have surpluses, their local currencies don’t support their ambition of going big and challenging the U.S. dollar.
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“The dollar offers the safest, broadest, most liquid markets,” said AEI’s Steve Kamin. “The U.S. is also protected by the rule of law, including foreign investors,” he said. BRICS lacks a set of rules and regulations for oil payments in local currencies and depends on the U.S. dollar for transactions. “Right now, the biggest surplus in the global economy is actually in China, it’s not in the oil countries,” said CFR’s Brad Setser.