/ 7 March 2023

How the Global South can escape the dollar’s stranglehold

In 1971 the United States, acting unilaterally, put an end to the gold standard as the basis of the international monetary system. The US dollar became the reserve currency with the result that the US has been able to control financial markets and print money as and when it sees fit.

This gives the US extraordinary global power and, along with the structure of the World Bank, the International Monetary Fund, and the United Nations Security Council, means that although there are some democratic states there is no democracy of states.

Over the years it has often been argued that building a more equitable world requires, among other measures, the democratisation of the global financial system. This would require, along with other steps, a move away from the dollar being the primary global reserve currency.

There have been some proposals to break away from the stranglehold of the dollar. Some have argued that plans to move against the chokehold of the dollar on the economies of the Global South were central to the motivation on the part of the US to remove Iraq’s Saddam Hussein and Libya’s Muammar Gaddafi from power.

Now there are renewed attempts to circumvent the near monopoly of the dollar as the primary currency of global trade. The decision by Saudi Arabia to accept other currencies in exchange for its oil is an important development. The move away from the dollar has been suddenly escalated by the war in Ukraine.

Immediately after the war began the West kicked Moscow off the international SWIFT banking system and froze its assets around the world. Russia responded by demanding payments for its gas in its own currency — the rouble. Several countries including Germany, India and Saudi Arabia acquiesced to Russia’s demands, thereby allowing it to bypass some of the sanctions.

As a result, an unintended consequence of Western sanctions has been a clear demonstration that international trade can be carried out without reliance on the US dollar. The war, of course, is horrific for its victims. But to note that a war can have multiple outcomes is not to overlook the suffering it causes. For example, World War II unleashed unspeakable horrors and lit a fuse under anti-colonial movements. 

New possibilities

The rapidly developing possibilities for international trade without the mediation of the dollar is a significant moment for the countries of the Global South, which have often found themselves expected to be vassal states of the US in particular, and the West more generally. The power relations are so crude that, as we recently saw in Afghanistan when the US appropriated $9.5-billion from the Afghan central bank, dollar reserves of other countries held in the US central bank are not secure.

The US has a long history of attempting to economically isolate and sanction states that it perceives to be a threat to its power. This goes back to the Haitian revolution against slavery in 1804, and was perhaps most infamously encapsulated by president Richard Nixon’s instruction to the CIA in 1970 to “make the economy scream” in Chile to “prevent [Salvadore] Allende from coming to power or to unseat him”.

The economic warfare unleashed on Russia by the West, including the freezing of its dollar denominated reserves, has shown that no country that crosses the US is safe. It should be an urgent wakeup call to the Global South to get going on an alternative financial system that is not reliant on the US dollar. The combined GDP of the Brics countries (Brazil, Russia, India, China and South Africa) is more than that of the G7 grouping (Canada, France, Germany, Italy, Japan, the United Kingdom and the US, with the European Union being a “non-enumerated member”). These countries can certainly find a better way of working together to build a financial system that is not under the control of the US, which has continually blocked attempts to develop new and fairer rules for global trade.

It seems likely that Brazil’s President Lula da Silva will work to reinvigorate ALBA (the Bolivarian Alliance for the Peoples of Our America), which aims to develop the economic and political integration of countries in Latin America and the Caribbean. This could accelerate the push for greater economic autonomy in the Global South. 

The expected inclusion of more countries into Brics is potentially an important opportunity for the grouping to put its house in order and become more focused on what it wants to achieve in this rapidly changing international system. Brics needs to further strengthen its institutions and those of the New Development Bank so that it can be that anchor that creates and sustains an alternate system for countries of the Global South.

Brics and the rest of the countries in the Global South need to use this crisis, and the lessons of Covid-19 lockdowns, to strengthen trade among themselves. This trade should be structured to favour their conditions and to benefit the Global South. Current international trade rules impose barriers and high tariffs on developing countries’ abilities to export value-added products to industrialised countries. Yet there are huge untapped markets in the Global South. These are markets waiting to be fully used and by developing countries bypassing high tariffs and barriers and trading more with each other.

Political shifts

Economics can never be understood in isolation from politics. We will also require a more multilateral system of global governance if we are to build a fairer set of global economic arrangements. The refusal to find a way to the negotiation table with the aim of negotiating an end to the war in Ukraine is an example of this failure of the current global political system. 

A clear majority of the leading countries in the Global South have taken a non-aligned position on the war, and have been calling for negotiations since the war started. But their pleas have fallen on deaf ears with the West hellbent on continuing the war at all costs by flooding Eastern Europe with more and more weapons. This benefits its arms industry and allows the US to further entrench itself in Europe, which had been slowly moving further away from Washington’s influence, but it does not benefit the rest of the world and in particular not the Global South.

The prevailing global order is not working for the Global South. It has never worked for the Global South, and is well described as neocolonial. There are major political differences between the Brics countries but they all have a shared stake in developing a more representative and equitable system of global governance, including the World Trade Organisation, the International Monetary Fund, the World Bank and the UN Security Council.

The global economic and political domination of the West is often seen as a natural order of things. Questioning this leadership, or advocating for a more equitable global system, often provokes anxiety and a crisis of identity, including among South Africans who see themselves as part of the West. 

But the stakes are too high for acquiescence to the ongoing Western domination of the world. We need a new global order that does not continue the old game of generating wealth in the North and impoverishment in the South. We need a new global order that is as outraged by atrocities in the Democratic Republic of the Congo, Ethiopia, Yemen, Afghanistan and Guatemala as it is by those in Ukraine. We need a global order in which Africans, along with people from the rest of the Global South, can take their rightful place in the world and in world affairs.

Nontobeka Hlela works for Tricontinental: Institute for Social Research and is seconded to the office of the National Security Advisor as a Researcher, she writes in her personal capacity

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian