With major oil exporters joining the BRICS, settlements in the local currency rather than the US dollar have become more normal: analysts

Brix image: VCG

With Iran, Saudi Arabia and the United Arab Emirates joining the BRICS group, the multilateral mechanism now includes the world’s major oil producers and importers. Analysts said that the wider adoption of local currencies for trade between BRICS countries, rather than the use of the US dollar, seems more natural.

South Africa’s president announced Thursday at the BRICS summit that six candidates – Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates – will be admitted as BRICS members on January 1, 2024. Currently, BRICS members include Brazil, Russia, India, China and South Africa.

An oil industry insider in Shanghai told the Global Times on Friday on condition of anonymity that having oil producers and consumers as members will lay the foundation for BRICS members to use local currencies in settlement, which can certainly reduce transaction costs, adding that people are seeing the twilight of the petrodollar.

As of August, countries that had expressed interest in joining the BRICS group accounted for 60% of the world’s known oil and gas reserves, according to media reports.

“If you take into account the other trading blocs that each of the five current BRICS countries are members of, plus countries that wish to join the BRICS, it is enough to build an independent transnational monetary system. That means more international oil trade,” the insider said. It could break the stranglehold on the petrodollar using local currency settlement.

The BRICS leaders stressed the importance of encouraging the use of local currencies in international trade and financial transactions between the BRICS countries as well as their trading partners, encouraging the strengthening of correspondent banking networks among the BRICS countries and enabling settlements in local currencies, according to the announcement. It was issued during the 15th BRICS summit, which lasted three days and ended on Thursday.

Open data showed that so far, the volume of intra-BRICS transactions using the US dollar and the euro has continued to decline.

The insider stressed that when oil and other commodities are traded directly in currencies other than the dollar, the function of US Treasury bonds as foreign exchange reserves will be irreversibly weakened, as oil, which is the most important energy commodity traded, has always been linked to its status. of the global reserve currency.

Insiders pointed out that “the sale of US dollars and US Treasury bonds will be accelerated.”

In fact, the trend towards reducing holdings of US Treasury bonds arose gradually.

Saudi holdings of US Treasury bonds fell to their lowest in six years, reaching $108.1 billion in June. The cumulative net sale of US debt is nearly $80 billion. The UAE also sold US debt with a total value of about $4 billion, according to US Treasury data.

Analysts pointed out that the trend towards de-dollarization is in fact the bitter fruit made by the United States. In recent years, successive unilateral financial sanctions imposed by the US have reminded more and more countries of the urgency of getting rid of the dollar, which is now the general consensus.

On the other hand, the US dollar has long been supported by global confidence in US debt. But the US has hurt the rest of the world economy through unlimited quantitative easing and massive interest rate hikes. It should be said that the US is overdrawing from US dollar credit, a manager named Wang of a Beijing-based securities firm told the Global Times on Friday.

“In the past, there might have been no better alternative to the US dollar, and the strong economic strength of the US allowed the dollar to continue to maintain its dominance. Now things have changed. For example, the BRICS New Development Bank offers an alternative solution.” “The local currency settlement environment reduces the cost and complexity of cross-border trade,” Wang said.

Wang also noted that the situation of the dollar is affected by political and economic instability in the United States. The high level of US government debt and uncertainty about the growth of the US economy will lead to a depreciation of the dollar. Naturally, other countries would want to reduce their dependence on the dollar to reduce these risks.