One of the main items on the agenda of the 15th BRICS summit was to promote trade settlements in member states’ own currencies. It was, however, intriguing to see South Africa, the host country of the meeting, declaring that this aim was by no means intended as a push for de-dollarization.

There are two basic facts regarding de-dollarization.

First, the current narrative around de-dollarization within the international community is fundamentally different from that around the demonetization of gold in the 1970s, during which the then-US president Richard Nixon announced the “temporary” suspension of the dollar’s convertibility into gold; and later on, the International Monetary Fund revised its charter to officially scrap provisions on the US dollar’s peg to gold under the Bretton Woods System.

A system of multiple reserve currencies was subsequently established, granting the US dollar, the Deutsche mark, the British pound, the Japanese yen and the French franc the status of an international currency, facilitating their inclusion in the foreign exchange reserves of individual economies. The IMF has not made any amendments to its charter since then, and the US dollar is still the most important international currency today.

Second, the current de-dollarization process, while set to expand and gather strength, is still in its infancy. It is, therefore, too early to discuss whether the US dollar has lost its supremacy. Nevertheless, an increasing number of countries and intergovernmental organizations are seeking to settle bilateral trades using their own currencies or the currencies of member states, suggesting a declining trend in the US dollar’s superiority. This is occurring along with the declining importance of other international currencies such as the euro, Japanese yen and British pound.

Apart from the BRICS, the Association of Southeast Asian Nations and the Shanghai Cooperation Organization are also intergovernmental organizations that promote mutual trade settlements in member states’ currencies.

Hong Kong, as a special administrative region of China, should assist the country in establishing an RMB monetary system or a RMB currency zone. To this end, Hong Kong has to address three major tasks: optimizing the relationship between the Hong Kong dollar and the RMB; expanding the city’s RMB offshore business; and assisting the country in creating RMB financial instruments

The top item on the agenda of the ASEAN Finance Ministers and Central Bank Governors Meeting, held from March 28-31 in Indonesia, was to scale up local currency transactions in a bid to reduce the bloc’s reliance on the dollar, euro, yen and pound. To this end, ASEAN is seeking to expand its cross-border digital payment system, starting with the replacement of credit cards issued by multinational banks with locally issued ones.

There is huge potential for BRICS countries to settle bilateral trades in the currencies of member states.

Trade volume between Brazil and China has continued to break records every year, reaching $150 billion in 2022; between Brazil and India, trade grew 60 percent to reach $11.5 billion in 2021; between Russia and India, it tripled to $31 billion in 2022; between China and Russia, trade surged from $147 billion in 2021 to $190 billion in 2022, an increase of approximately 30 percent.

The BRICS countries could overtake the ASEAN states in expanding financial services denominated in member states’ currencies.

At the 23rd Meeting of the Council of Heads of State of the Shanghai Cooperation Organization on July 4, President Xi Jinping proposed expanding the share of local currency settlements among SCO members, expanding cooperation on sovereign digital currencies and promoting the establishment of an SCO development bank. 

The renminbi is increasingly being used to settle not only bilateral trades between China and other countries but also among other countries. Reuters reported on July 3 that many refiners in India have started paying for Russian crude oil in RMB, which is a significant development.

During Indian Prime Minister Narendra Modi’s trip to the US in June, the two countries agreed to expand military, technology, economic, and trade collaboration. Against such a geopolitical background, Indian companies went ahead with their plans to settle oil transactions with Russia in RMB, suggesting the power of the laws of economics is not to be underestimated.

Pakistan has also started buying crude oil from Russia in RMB. Meanwhile, Russia and Iran are exploring the possibility of using RMB to settle bilateral trade.

The best-case scenario for the world in the next decade would be the avoidance of nuclear war, even if the Russia-Ukraine conflict intensifies and expands geographically, and the Taiwan question escalates.

Even the best-case scenario, however, cannot prevent a fragmentation of the world economy, which could evolve in one of two ways:

Two international economic systems will be formed separately by the US and China, and be indirectly linked via other countries or national organizations; the world’s two largest economies will separate from each other completely, resulting in a fragmentation of the world economy.

Correspondingly, the world economy will either be dominated by two major monetary systems — the RMB system and the US dollar system — or by a system that sees the two major currency zones coexist with other smaller ones.

Hong Kong, as a special administrative region of China, should assist the country in establishing an RMB monetary system or a RMB currency zone. To this end, Hong Kong has to address three major tasks: optimizing the relationship between the Hong Kong dollar and the RMB; expanding the city’s RMB offshore business; and assisting the country in creating RMB financial instruments.

The author is a senior research fellow of China Everbright Holdings.

The views do not necessarily reflect those of China Daily.