An interim BRICS+ trading currency arrangement

BRICS and the SCO have agreed to replace dollars with national currencies for trade settlement. This article shows how it is leading to the renminbi becoming the reserve currency for members.

The background

There is little doubt in both Russian and Chinese government circles that the dollar is not only declining but could now face an existential crisis. The decline is coming about fuelled by China and Russia progressing with plans to reduce the use of the dollar, not just between themselves but throughout their spheres of influence. Courtesy of the USA, it is no longer being used between China and Russia, a move which has focused minds elsewhere about the US’s weaponisation of its currency.

The weaponisation of the dollar has removed any complacency in China’s approach to the dollar problem. She is now in no doubt that the dollar must be removed from her trading interests as much as possible and as a matter of urgency. This is behind the PBOC’s selling of dollars for gold. The PBOC knows that by dumping dollars, she threatens the entire western fiat currency system. But with the US becoming increasingly belligerent towards China they also know that there is little alternative.

Furthermore, after a prolonged period of heavily suppressed US interest rates and budget deficits running out of control, the US’s debt trap driving is bond yields higher and threatens to collapse the entire dollar-based credit system. Managing the fallout must be the hottest of topics between China and Russia, and the future for trade settlements between the Shanghai Cooperation Organisation and BRICS+. Along with these two organisations, both Asian hegemons also know that they must make themselves independent of the dollar for fear of being caught in its downdraft.

China and Russia have already made significant progress in this direction, having put their own intra-national trade on a rouble-yuan basis, with China acting as a conduit for Russia’s exports to other importers as well. As long ago as 2015, China launched her Shanghai-based CIPS (cross-border payments system), allowing banks to clear cross-border renminbi transactions onshore, instead of offshore settlements using SWIFT or New York clearing. Besides trading in gold and silver futures on the international section of the SGE, China has also established trading platforms pricing in renminbi for other key commodities: oil and copper futures in Shanghai, and on the Ganzhou Rare Metal Exchange spot prices for cobalt, tungsten, and a number of rare earth metals. 

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