Alternative Reserve Currency Envision

Badrul Millat Ibne Hannan: The entire world is witnessing the price spiral of commodity. Most of the people are the victim of such spiral of commodities. We all seem that this is due to the war and inflation. The war is not only one reason. Though the war has warped the economy of entire world greatly. The big economic countries like US and allies have made many sanctions on Russian’s oil and gas companies. This sanction increases tension for many countries. Because the energy price increase accelerates the price of maximum products. Maximum countries of world import oil from OPEC countries including Russia. Such oil import payment is usually settled through dollar. The USA fires to this fuel using dollar as a weapon. Most of the countries use the SWIFT system settling the balance of payment and maximum transaction occurs through dollar. In the meantime, Federal Reserve of USA increases interest rates three times in this year.

Apparently, mass people blame Russian invasion on Ukraine. But increasing interest rate by Fed is playing a vital role to such spiral. If interest rate is higher in the USA than other countries, there is a great chance to transfer the amount to America or American banks or Banks supported by US located in any country via Money Laundering, Hundi, by any Third Countries due to gaining returns without any business activities.

Probably, when USA’s economy is under crisis or intends to turmoil any country’s economy, they might do this for the survival though there has been enacted Dodd Frank Act on July 21, 2010 in USA to regulate the economy. There is a contrary opinion of Dollar. Many economists say that alternative of dollar is like MAD (Mutually Assured Destruction) theory of nuclear bombs i. e harmonize of international currencies.

However, let’s discuss how another currency will stand against USA’s dollar and how its power will be corroded in stealth. Can it become really another currency stand against Dollar?

In our country, in the basket of reserve currency- other currency has been increased from 2017 to August 2022. In 2017 Chines Renminbi was 0.4 % in August 2022 is 1.5%, Euro was 3.8% it is now 4.9%, Pound was 3.4% but it is now 4.4%, Gold was 1.8% it is now 2.8% SDR (Special Drawing Rights of IMF) was 4.2% but it is now 2.8% Others 3.8%, it is now 3.6%. From analysis of Reserve Currency of the country since last five years- in the basket of Reserve Currency, Dollar was about 81% in 2017, it is ow 75%. About 6% of dollar from the basket of Reserve has been decreased. Most probably, it was for the declaration of Renminbi as part of reserve by IMF.

Here is a confusion about Renminbi vs Yuan. Both are the same? Answer is here-“Renminbi is the official currency of the People’s Republic of China, and means “people’s currency” in Mandarin. A yuan is a unit of the currency. A popular analogy draws from the British pound sterling vs. the pound: renminbi is the name of China’s currency, just as sterling is the currency of Great Britain.”

However, in 2017, 323-million-dollar equal Renminbi was used as a settlement of foreign trade in Bangladesh. At present it is now 528 million equal dollars which signals that it is coming with strength in the currency competition. Although there are many opinions for maintaining Reserve Currency of the country which currency is to be maintained or gone for. Reply will be made last part of the article.

Now we will find the alternative of Dollar as a Reserve Currency. It is not easy task to push off the dollar instantly. Because US has a strong policy, regulation and treasury bond. Its policy is more transparent than China and Russia. Although, Russia and Chine have wide geographical areas and people. Both countries belong to BRICS. According Arab News, BRICS collectively represent about 27% of world’s geographic areas and are 42% of world’s population. Estimated population live in about 3.21 billion. Except South Africa, rest four of the BRICS countries are the biggest of the world and have highest population.

The larger part of the production of oil are from BRICS Countries. BRICS will be stronger than previous if KSA joins in it. Recently we hear news about it by declaration of reduction of oil production by OPEC pressurized by Saudi Arabia. There is strong probability of KSA, Tukiye and Egypt to join in BRICS. About 26 percent of steel & iron, 40 % corns and 46 % wheat are produced by BRICS countries. It has 4.5 trillion combined forex reserve. The entire world GDP’s 32 percent are from five countries of BRICS.

A major part of population of Middle East are in four countries- Iran, Suadi Arabia, Egypt and Turkiye. About 40 percent of total production in Gulf Countries come from these four countries.

Here, BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Goldman Sachs economist Jim O’Neill coined the term BRIC (without South Africa) in 2001, claiming that by 2050 the four BRIC economies would come to dominate the global economy. South Africa was added to the list in 2010.

However, after joining Saudi Arabia, about 42 percent of world oil production will be in BRICS. Moreover, if these aforesaid countries join at BRICS, about 40 % of total GDP and 60 percent of consumer market of the entire world will be controlled by it.

14th BRICS summit held on July 24, 2022 In China. There are some initiatives to stand against USA, World Bank and SWIFT. It calls grow for parallel payment system to counter US hegemony which is full alternative of SWIFT.

A bank named “New Development Bank” was established in 2015 by BRICS countries– Brazil, Russia, India, China and South Africa. The Bank’s membership is open to members of the United Nations. NDB commenced the admission of its first new member countries in the second half of 2021. Bangladesh, the United Arab Emirates, Egypt and Uruguay have since joined the bank.

Many Economists consider that New Development Bank will be the alternative of World Bank. These reasons are the enough to fight against US dollar and market share of dollar must be replaced by new a currency developed by BRICS.

Is the easy to push off US dollar?
let’s discuss the part of history of dollar. From world war-I to world ward war-II US dollar was not a reserve currency. Though the world war-I started in 1914, USA was engaged to tidy up of their economies strongly. During world war-I most of business and economies of USA were involved with allies’ power countries. Figuring showing for a few years has proved that GDP and Export of US from 1913 to upward few years they were very busy to tidy up of their economy strongly. In 1913 FY export of USA was 4.2 billion USD it was reached in 1917 6.2 billion USD after four it was increased by 50 %. World war-I was ended in 1917 but there were many changes occurred.

In this time, Ottoman lost their monarchy, oil field were discovered in Saudi Arabia and after that world war-II was started and world economy was very turmoilable. During world war-II most of the countries, especially European countries would keep their Gold as a reserve into USA. A study shows that the reserve of world’s Gold 20,000 tons in 1942. Most of the countries of Europe was involved in the war. This was the blessing for America because US did huge business with this chance of war. Only one exception was occurred for America. It was pearl harbor attack by Japan.

Second World War ended September 02, 1945. In the meantime, Bretton Woods Agreements made from July 01 to 22, 1944. About 730 delegates were present from 44 countries. All delegates paid a consent to maintain US dollar as a Reserve Currency on basis of gold.

Dollar had been more stronger after the declaration of Richard Nixon for the removal of dollar from gold standard on August 15, 1971. His strategy was that the dollar would be inserted with oil instead of gold known as petrodollar.

From 1944 to till, why did US dollar dominate widespreadly? The probable reasons are here- US has more diversified economy. It has strong service sector and machinery sector. The most advanced technology belongs to US. It has strong medias and education sector.

All sectors of US is more predictable for the policies and strategies. As USA can print dollar where as other countries earn dollar. So, America contributes a lots of dollars as donations and grants to the developing and least developed countries.

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Now the question- Can BRICS supersede the US dollars?
It may be possible or may not be possible due to the following reasons-
1. There exists a strong democracy in USA where as a limited or no democracy exists in BRICS belonged countries.
2. The entire market of USA is more predictable than BRICS belonged countries.
3. US has sector wise strong systems.
4. There has a huge doubt among the leaders of BRICS whereas US does not have doubt or less doubt among the leaders.
5. The market of BRICS is volatile.

Due to weak policies, strategies and lack of democracy, and less trust among the leaders BRICS can not supersede the world bank or dollar with next few years.

As a example- Putin thinks that he has some friends countries where he gets supports from. In September and October, Putin fights alone against US and allies. Why have such situations been made? Lack of commitment or doubt or democracy?

Analyst: Md. Badrul Millat Ibne Hannan, Certified Financial Consultant (IFC, Canada), MPA, AIS (DU), ACCA (Final Level) Officer, Islami Bank Bangladesh Limited.