The US dollar has been the world’s reference model acting as the international reserve currency and a barometer for the global export market. This position of monopoly, however, is gradually being threatened especially with the rise of the BRICS’ emerging economies – Brazil, Russia, India, China and South Africa. The BRICS members, jointly accounting for more than two/thirds of the global population and approximately 1/4 of world GDP, are insisting on diversifying the world processes. Concomitantly, changes in the global economy means the shift from the dollar-centered to a more pluralistic and polycentric financial system and the emerging of BRICS.

Since the Bretton Woods Agreement in 1944, the US dollar became the international currency. It was established because it fixed the dollar at gold and made other currencies to be always fixed on the dollar. Indeed, after the breakdown of the Bretton Woods system in 1971 when United States of America dropped the ‘gold standard’, the dollar still held the upper hand. The reasons were multifaceted: the current strength of the American economy, dollar as the world’s reserve currency, and its role in oil business called the petrodollar system.

This led to the US enjoying some important privileges since the dollar dominated. The hegemony of the dollar gave the US such an added advantage. It allows the country to borrow at cheaper rate because demand for assets in foreign currency particularly the US Treasury bonds was still high. Furthermore, it also gave the US the leverage to fundamentally control most institutions like the International Monetary Fund (IMF) and the World Bank. However, the existence of a unipolar structure of the financial world was accompanied by criticism for the organization’s weaknesses and for the political use of the seven-figure status.

The countries that make up the BRICS association, for the most part, joined it at the beginning of the 2000s with the basic goal of advancing economic integration, and to counteract the US and European hegemony in the financial sphere. What started with coordination without formal structure has over the years developed into a large trading and investment bloc, in terms of share of the total world trade and investments. BRICS countries possess diverse economic strengths: China is a manufacturing giant, Brazil is endowed with natural resources, Russia is an energy supplying nation and South Africa is a key country in Africa.

The BRICS nations are, thus, deliberately moving away from the dollar dominated world. Multiple factors have triggered this shift: political rivalries, economic sanctions imposed by the US, and quest for more operational control on the banking sector.

Another main reason the BRICS has formed this alliance is since most of them rely mostly on the US dollar. Some of these nations, the most affected being China and Russia, have at one time or the other faced the effects of economic sanctions. As a result, the actions of the BRICS group have been focused on searching for methods to curtail the role of the dollar and work out functions that may enable to organize the exchange in local currencies.

In the recent years, the BRICS nations are, thus, deliberately moving away from the dollar dominated world. Multiple factors have triggered this shift: political rivalries, economic sanctions imposed by the US, and quest for more operational control on the banking sector. The highlight of it was being established in the year 2014 with the New Development Bank (NDB). H5 Founded in 2015, the NDB is based in Shanghai. Their main goals were to offer development financing solutions in local currencies to member states instead of dollar-dominated systems of Western counterpart institutions.

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The twin economies of China and Russia have been very aggressive in the push towards de-dollarization which is evident by the increase in the volume of their bilateral trade that is now more settled in yuan and ruble. India has also expressed an increasing desire to utilize the rupee for overseas purchases, especially from Russia in form of oil. When engaging in trade with members of this group, they hope to achieve use of local currencies to dodge the dollar-based system, eliminate high costs of doing business and also work to eliminate the volatility of the foreign exchange market.

The twin economies of China and Russia have been very aggressive in the push towards de-dollarization which is evident by the increase in the volume of their bilateral trade that is now more settled in yuan and ruble.

In addition, the idea of BRICS common currency was raised for consideration. Though it is at this stage still in its early stages, the concept stems from the group’s strategic thinking about the creation of a new, post-crisis architecture of global finance. Three potential actions remain: muting of the US dollar can be complimented by shared currency or even closer financial architecture in BRICS countries.

The fact that BRICS countries started to diversify from dollar means that this process will have a very important impact of trade and finance globally. As more countries look for avenues of diversifying their foreign reserves and look at the option of moving away from accumulating the greenback, the use of dollar is likely to come down.

A more favorable position for the emerging economies is associated with moving to local currencies within the conduct of trade relations, which can protect against excessive dollar risk observed during the US Federal Reserve’s interest rate hikes. Most developing countries have been subjected to capital flight and inflationary forces when the dollar rises since their debt is normally dollar linked.

Holding dollars by the BRICS countries exposes these nations foreign accounts to the volatility of the dollar thus it is easier for them to diversify to improve on their economic stability. Moreover, the diversification of global finance can promote a relatively equitable global distribution of power resources. The US has in the past applied its manipulated control over the dollar-based international financial system as a way of negotiating with other countries putting sanctions on those countries which it does not approve of.