Jakarta, IO – There are attempts led by China and Russia for a long time to overthrow the role of the US dollar as a pioneer in global trade, and the reason is due to the desire of the two countries to weaken the hegemony of the United States of America over the world politically, economically and technologically, within the quest to create a multipolar world order in which the United States of America does not occupy the center stage or global domination.
The Chinese and Russian sides concluded agreements whose provisions provided their countries with greater opportunities than they are as economic powers to raise the level of trade exchanges, using their currencies, the ruble and the yuan, to disengage from the US dollar, which observers and economists considered as a knockout blow to the US dollar, which is the only global transaction unit. Indeed, there are those who consider it a Russian bomb that is expected to explode in the face of the US economy at any moment, especially with the increasing speculation that other countries will join the BRICS group, which includes Brazil, India and South Africa, to the Russian-Chinese alliance.
Many countries in the world have taken steps similar to China and Russia in disengaging from the US dollar, where Brazil and Argentina announced their willingness to launch a common currency between them similar to the euro. Russia and Iran are also working together at the present time to create a gold-backed cryptocurrency for use in global trade. The UAE and India also signed a free trade agreement in 2022, with the aim of increasing non-oil transactions with the idea of conducting non-oil trade using the Indian rupee.
According to the Russian-Chinese agreement, the two countries’ dealings in their currencies in trade exchanges aim to reduce the dominance of the US dollar globally and in the circle of their friends and allies. The Russian Federal Customs Service expects that the rates of exchange in local currencies between them and the Chinese and their other partners will double at a rate.
And that agreement concluded between the Chinese and Russian economic giants, who together pose unprecedented threats to the dollar and the US economy, did not stop at traditional commodity exchanges only, but also included the oil commodity and its derivatives, which is expected to cost the United States of America a loss of up to 17 trillion dollars, This step has expected effects on many economies of the world, which are closely linked to the dollar, especially the Gulf and Arab economies, especially since oil constitutes more than 90% of the financial revenues of the Gulf countries and the region.
It is also expected that many other BRICS countries will join the Russian-Chinese alliance in disengaging from the dollar, which will strengthen the hand of this group, as a major threat to the dollar and the US economy and all economies associated with it, and it is known that Russia is a giant global power in the oil and gas industry, China desperately needs more energy to fuel the growth of its economy, which is expected to top the list of the most powerful economies in the world over the next few years.
Here we find that the decision to stop dealing in dollars between the countries of the new Chinese and Russian economic alliance means that the US dollar will lose about $500 billion annually in the commercial exchange market, and with the start of feeding the Chinese market with energy, according to the agreement that was signed between the two countries, and calculating the value of the deals in the two local currencies. Accordingly, the cumulative losses of the dollar will increase, which will accelerate its collapse. We find that the Chinese and Russian sides are now working to organize payment channels between Russian and Chinese companies, and these channels will be a link between the Russian and Chinese payment systems.
In a new step towards completely abandoning the US dollar, Brazil, as one of the most important economies of the BRICS group economically, announced the conclusion of a new agreement with China to agree to use their local currencies in trade exchange between them, instead of using the dollar. This agreement came during the high-level Chinese-Brazilian Business Forum in the capital, Beijing, on April 3, 2023, and is a new step added to a series of previous agreements towards dealing in local currencies instead of the US dollar, while China and Russia continue to include more countries in the circle of countries dealing in yuan and domestic currencies in foreign trade to strike and weaken the value of the US dollar globally.
On the Egyptian side, disengagement from the dollar will serve Egypt economically, just as if Egypt were able to agree and harmonize between the price of the Egyptian pound and the price of the Chinese yuan and the Russian ruble, and if Egypt was able to deal with China and Russia in this context, it would have positive repercussions on the Egyptian national income, because this will greatly reduce the burden on Egypt’s reserves and the country’s hard currency income, which is in dire need of it.
Read: Looking at Indonesia’s Nickel Downstream Efforts from The Perspective of Resource Curse
Also, the huge projects between Egypt, China and Russia, including the New Administrative Capital projects and the (Dabaa nuclear project) with Russia, after building the first reactor in Egypt and operating it to generate electricity with Russian expertise, after which Egypt will start paying off the Russian and then the Chinese loan. Egypt’s payment in its local currency or in the Russian ruble, according to its agreement with the Russian side, away from the control of the US dollar, is considered a strong blow to the US dollar in Egypt and the region. It is possible that the economic situation in Egypt will improve and that Egypt’s income from foreign currencies will improve. Therefore, it is difficult to say the success of this process, but there must be agreements and agreement on currency rates between each other, meaning the value of the Egyptian pound in relation to the ruble, and the Egyptian pound in relation to the Chinese yuan.
Through these data, we can say that the Russian-Chinese decision will incur losses of $20 trillion to the US economy, according to many expectations, and the size of the losses will increase if other BRICS countries joining. The dependence of countries on their local currencies with others enhances their national economy and helps them reduce the cost of trade exchange with others.
Dr.Nadia Helmy, Associate Professor of Political Science, Faculty of Politics and Economics / Beni Suef University- Egypt. An Expert in Chinese Politics, Sino-Israeli relationships, and Asian affairs- Visiting Senior Researcher at the Centre for Middle Eastern Studies (CMES)/ Lund University, Sweden- Director of the South and East Asia Studies Unit