Brazilian President Luiz Inácio Lula da Silva has suggested that developing countries should abandon the US dollar and focus on strengthening their own national currencies. Speaking at the New Development Bank in Shanghai, Lula questioned why all countries have to base their trade on the dollar, suggesting that the greenback’s global dominance should come to an end. He also questioned why a bank like that of the BRICS (Brazil, Russia, India, China, and South Africa) cannot have a currency to finance trade relations between Brazil and China or Brazil and other countries. Lula’s statements come after China signed a new deal with Brazil and completed its first Liquefied Natural Gas (LNG) payment in yuan, while Russia has been committed to settling trades using other countries’ currencies.
There has been increasing discussion about removing the US dollar’s status as the global reserve currency, with the idea becoming more of a reality in 2023. Lula’s comments come after the Philippines’ central bank governor, Felipe Medalla, recently mentioned in an interview that the greenback’s prominence will gradually diminish. However, any efforts to undermine the US currency in the near term will face a substantial challenge. Financial Times reporters Joe Leahy and Hudson Lockett concluded their report on Lula’s statements by noting that Brazilian miners regularly engage in dollar-denominated trades.
Despite the challenges, officials from Brazil and the BRICS nations are working towards creating a new BRICS-based reserve currency. In Shanghai, Lula voiced his curiosity about the world’s dependence on the greenback, asking why all countries have to base their trade on the dollar and why can’t they trade using their own currencies. He also inquired who decided that the dollar would be the dominant currency after the gold standard disappeared.
The potential decline of the dollar’s dominance is a topic of discussion not just among BRICS nations, but also among other developing countries. Medalla stated that he believes over time, the dollar will be less and less dominant, but it’s happening very slowly. He added that they want a multi-currency world, but so far, other currencies do not have the necessary international markets to support it. This is the advantage of the US dollar – there’s a vast market for government securities.
A shift away from the US dollar as the global reserve currency is inevitable, but the impact it will have on the global economy and financial systems remains to be seen. Some experts believe that it will lead to a more multipolar world, with more currencies playing a significant role in international trade. Others argue that it could lead to instability and uncertainty, particularly if there is no clear alternative to the US dollar.
Regardless of the outcome, it is clear that the discussion around the US dollar’s dominance is not going away anytime soon. As countries like China and Russia continue to push for a more multipolar world, it is likely that we will see more efforts to challenge the greenback’s status as the global reserve currency. However, it remains to be seen whether these efforts will be successful or not.
In conclusion, Lula’s comments about the US dollar’s dominance have sparked a wider discussion about the future of the global reserve currency. While some believe that a shift away from the dollar is inevitable, others argue that it could lead to instability and uncertainty. Regardless of the outcome, it is clear that the discussion around the US dollar’s dominance is not going away anytime soon, and we are likely to see more efforts to challenge its status as the global reserve currency in the coming years.
