Nations should work together to chip away at dollar’s dominance
Published: Mar 27, 2022 08:08 PM
Nations should work together to chip away at Dollar's dominance. Illustration: Tang Tengfei/GT

Illustration: Tang Tengfei/GT

Russia has moved to seek payment in its own currency, instead of US dollars or euros, for energy trade with "unfriendly countries" in the West, a justified action to fight back the sweeping financial sanctions imposed on the country by the US and its allies. Following the announcement of the news, the ruble appreciated significantly in value.

It is a brave and wise move - a tit-for-tat measure against the world's major bully that rely on its market size and global reserve currency status to threaten, coerce, molest and take advantage of the weak and the disadvantaged ones. Now it's time for a change.

It should also inspire the world's other economies to imitate the Russian government by processing nation-to-nation trade in their own currencies, not the currency of a third-party surrogate currency like the US dollar. 

Over the past weeks, there has emerged very encouraging examples in which major trade powers initiated to demand processing bilateral trade in their own currencies. For an example, India and Russia agreed to a rupee-ruble exchange scheme to trade crude oil and other products, and, Saudi Arabia and China are reportedly discussing using China's yuan to process oil purchases.

As a matter of fact, the rapidly changing global geopolitical landscape is forcing many governments to re-think the viability, and most importantly, the impartiality and righteousness of the world's current financial system, in which the US dollar has played a predominant role ever since the end of the WWII.

Since late February when the Ukraine situation aggravated, non-Western countries and their leaders, the wealthy industrialists and individuals, and  national security scholars and strategists there, were astounded to find out that the US government, together with its allies, threw Russia out of the SWIFT international financial messaging regime. And, the West went to the extreme to freeze all of Russia's overseas assets denominated in US dollar, euro and Japanese yen. Even Switzerland, a well-known neutral nation for a long time, followed suit by freezing Swiss bank accounts of Russia and its nationals.

What has played out before a global audience over the past few weeks is naked illustration or exhibition of the US-dominated Western financial coercion and hegemony. Coupled with their military power, Washington and its allies have designated many countries of different political systems as "rogue countries" and imposed crushing financial sanctions on them, such as Iran, Syria, Venezuela, Cuba, Zimbabwe and North Korea.

Now, Russia, the world's largest country by landmass and sitting at No 11 in GDP rankings, is being penciled in.

The US and its allies have relied on the SWIFT regime to build up their wealth for many decades. The lopsided trade and settlement system unjustifiably favors and strengthens the US dollar, the British pound and the euro, helping the Western developed economies continue to pillage natural resources and cheap labor force of all the developing and underdeveloped countries in the world.

And, during the height of the unprecedented trade war between the US and China in 2019, which was initiated by former Trump administration, Washington also threatened to "decouple from China", with some hardliners in that administration and the US Congress suggesting to oust China from SWIFT.

As a colossal economy of more than $18 trillion, China should be on high alert and phase in a set of contingency plans in case the US and its allies decide to take on China. The US government has rendered China as one of its major strategic rivals, vowing to take whatever measures to contain further economic growth of this country.

In parallel to the SWIFT regime, the People's Bank of China, the central bank, has developed the country's own trade settlement system called Cross-border Interbank Payment System (CIPS), which could provide independent trade payment and currency transmission services for Chinese and non-Chinese financial organizations.

And, in the past months, CIPS has been well received and witnessed a period of faster development. Now, some 1,300 banks and financial organs from 103 countries and regions in the world have joined CIPS. Last year, more than 80 trillion yuan was transacted through CIPS, growing 75 percent over 2021. In January 2022, the yuan became the world's 4th major transaction currency, behind the US dollar, the euro and the British pound.

It is important for the country's central bank to encourage innovation of new and creative financial means, like the digital yuan, and inspire major Internet platforms including Tencent's Wechat Pay and Ant Group's Alipay to expand innovation in this space.

To promote internationalization of the yuan, China has executed bilateral currency swap agreements with more than 40 countries that have greatly assisted the yuan's use overseas. The country should continue to enlarge the program relentlessly, particularly with the world's major trade countries and blocs, like the Middle East nations, the ASEAN and the BRICS.

The author is an editor with the Global Times.