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The BRICS group of emerging economies has announced its decision to abandon the use of the US dollar for trade settlements and instead use the Chinese yuan. This move marks a significant shift in the global power dynamics and challenges the dominance of the US dollar in international finance.

Why BRICS is Moving Away from the Dollar

The BRICS group, consisting of Brazil, Russia, India, China, and South Africa, has been exploring ways to reduce its dependence on the US dollar for trade and finance for a long time. The group has been facing sanctions, trade wars, and currency fluctuations from the US, which have hampered its economic growth and stability. The group has also been advocating for a more multipolar and equitable world order, where the interests of the developing countries are better represented and respected.

The decision to move away from the dollar was announced at the BRICS Summit 2023, held in Beijing, China. The Chinese President, Xi Jinping, hailed the decision as a “historic” and “a new starting point for BRICS cooperation”. He said that the use of the yuan for trade settlements would enhance the group’s financial security, facilitate trade and investment, and promote regional integration.

The decision was also supported by the other BRICS leaders, who expressed their confidence in the Chinese currency and its potential to become a global reserve currency. The Russian President, Vladimir Putin, said that the use of the yuan would help the group to overcome the “unfair and unjust” international financial system, dominated by the US dollar. The Indian Prime Minister, Narendra Modi, said that the use of the yuan would boost the group’s economic cooperation and development. The Brazilian President, Jair Bolsonaro, said that the use of the yuan would strengthen the group’s strategic partnership and solidarity. The South African President, Cyril Ramaphosa, said that the use of the yuan would foster the group’s financial inclusion and innovation.

How BRICS is Implementing the Yuan for Trade Settlements

The BRICS group has been working on the technical and legal aspects of using the yuan for trade settlements for a while. The group has established a BRICS Payment System, which is a network of payment systems that allows the group to conduct cross-border transactions in local currencies. The group has also set up a BRICS Contingent Reserve Arrangement, which is a pool of foreign exchange reserves that can be used to provide liquidity support to the group in case of balance of payments crises. The group has also created a BRICS New Development Bank, which is a multilateral development bank that provides financing for infrastructure and sustainable development projects in the group and other developing countries.

The group has also been expanding its trade and investment ties with China, which is the largest economy and the biggest trading partner of the group. The group has signed several bilateral and multilateral agreements with China, such as the BRICS Comprehensive Strategic Partnership, the BRICS Framework Agreement on Trade Facilitation, and the BRICS Memorandum of Understanding on Cooperation in E-commerce. The group has also been participating in China’s Belt and Road Initiative, which is a massive infrastructure and connectivity project that aims to link Asia, Europe, Africa, and Latin America.

The group has also been exploring the use of digital currencies and blockchain technology to enhance its financial cooperation and innovation. The group has launched a BRICS Digital Currency Research Group, which is a platform for sharing information and best practices on digital currency development and regulation. The group has also expressed its interest in the digital yuan, which is the official digital currency of China, and its potential to facilitate cross-border payments and trade.

What are the Implications of BRICS’ Move for the Global Economy

The move by the BRICS group to ditch the dollar for the yuan in trade settlements has significant implications for the global economy and the international financial system. The move reflects the growing influence and confidence of the BRICS group and China in particular, as well as the declining role and credibility of the US and the dollar. The move also challenges the hegemony and monopoly of the US dollar as the dominant global reserve and trade currency, and opens up the possibility of a more diversified and multipolar global currency system.

The move could also have positive effects for the BRICS group and other developing countries, as it could reduce their exposure and vulnerability to the fluctuations and sanctions of the US dollar, and enhance their financial autonomy and stability. The move could also foster more trade and investment among the BRICS group and other regions, especially in Asia, Africa, and Latin America, and promote regional integration and development.

However, the move could also pose some challenges and risks for the BRICS group and the global economy, as it could create more uncertainty and volatility in the currency markets, and trigger more trade and currency wars among the major powers. The move could also face some resistance and backlash from the US and its allies, who could perceive it as a threat to their interests and influence. The move could also encounter some technical and operational difficulties, as the yuan is not yet fully convertible and widely accepted in the international markets, and the BRICS group still lacks a unified and coherent financial policy and governance.

The move by the BRICS group to move away from the dollar for the yuan in trade settlements is a bold and strategic decision that could reshape the global power dynamics and the international financial system. The move reflects the group’s ambition and aspiration to become a more influential and independent actor in the global arena, and to challenge the established and unfair order. The move also signals the group’s confidence and trust in the Chinese currency and its potential to become a global reserve and trade currency. The move could have significant benefits for the BRICS group and other developing countries, as well as the global economy and development. However, the move could also entail some challenges and risks, as well as some resistance and opposition, from the US and other actors. The move is thus a game-changer and a milestone for the BRICS group and the global economy.