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The bloc of countries that wants to overthrow the US dollar is set to gain 6 new members — here's what the potential recruits have said about de-dollarization

South African President Cyril Ramaphosa with fellow BRICS leaders President of Brazil Luiz Inacio Lula da Silva, President of China Xi Jinping, Prime Minister of India Narendra Modi, and Russia's Foreign Minister Sergei Lavrov pose for a family photo with delegates, including six nations invited to join the BRICS group, Argentina, Egypt, Ethiopia, Iran, the United Arab Emirates and Saudi Arabia, during the closing day of the BRICS Summit at the Sandton Convention Center on August 24, 2023 in the Sandton district of Johannesburg, South Africa.
The BRICS group of emerging nations has invited six new members to join its fold.Per-Anders Pettersson/Getty Images
  • The BRICS bloc of emerging nations has invited six new countries to join the group.

  • Iran has been the most vocal about de-dollarizing. The positions of other potential members vary.

  • Including major oil exporters Saudi Arabia, Iran, and the UAE intensifies the de-dollarization debate.

The BRICS group of emerging nations may have wrapped up its annual summit with no common currency last month and members issuing contradictory commentary about the greenback — but it doesn't mean its drive to de-dollarize is over.

The bloc is anchored by Brazil, Russia, India, China, and South Africa. It has invited six countries to join the alliance, which hopes to upset the dollar's dominance and become an alternative to the dominant Western world order.

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BRICS's newly invited members are Iran, the United Arab Emirates, Egypt, Argentina, Saudi Arabia, and Ethiopia. Iran, which has been heavily sanctioned by the US, has been the most vocal about transacting in non-dollar currencies, while the others have taken various positions about alternatives to the greenback.

The inclusion of major energy exporters such as Saudi Arabia, Iran, and the UAE on the list of potential BRICS members is a big deal because energy commodities — which are typically denominated in US dollars — are heavily traded and a key component of the global economy.

Therefore, any move by these energy exporters to trade in non-dollar currencies could gain momentum in the broader economy.

"Together with fellow oil and gas exporters Iran and the UAE, the admission of Saudi Arabia to the BRICS grouping will inevitably focus the debate on the use of non-dollar currencies in trade," wrote analysts at the Dutch bank ING in an August 24 note, referring to the ongoing debate over de-dollarization.

Here's what the six new potential members have signaled about the move away from the dollar.

Heavily sanctioned Iran has long been trying to de-dollarize

Iran — a major oil producer — has been on a drive to de-dollarize for years.

Tehran made a major push to de-dollarize in a May meeting with 11 other countries including India, Russia, and Sri Lanka.

Given that Iran has been sanctioned for years, the Middle Eastern country has been discussing using the yuan to settle trade as far back as 2010. In 2012, China started buying crude oil from Iran using the yuan.

In February, Tehran and Beijing discussed increasing the use of the yuan and the Iranian rial for bilateral trade, per the Financial Tribune, an Iranian media outlet.

Iran also linked up with Russia's payment system, the System for Transfer of Financial Messages, in February, Al Jazeera reported.

Tehran has also called on India to conduct bilateral trade in local currencies — specifically in the Iranian rial and the Indian rupee, Iran's Tasnim News Agency reported in May. 

The UAE has agreed to trade oil with India in the rupee

The UAE doesn't appear to have made a public declaration on moving away from US-dollar trade — but its actions indicate otherwise.

In February, top Indian oil refiners were buying Russian crude with the dirham, UAE's currency.

In August, India's top oil refiner used Indian rupees to settle an oil trade with the UAE's state-owned Abu Dhabi National Oil Company.

"The UAE has long deployed a multi-alignment strategy," wrote Kristian Alexander and Gina Bou Serhal, from Trends Research and Advisory in Dubai, on September 13, referring to the UAE's foreign-policy stance.

"By joining the bloc, the UAE signaled that it wants to move away from overreliance on Western partnerships and play a more prominent role in shaping the global order," they wrote.

Egypt is 'very, very, very strongly considering' trading in non-dollar currencies

Like Argentina, Egypt has been suffering from a shortage of greenbacks since 2022, when the US Federal Reserve started hiking interest rates, which boosted the dollar's strength.

The Egyptian pound has also lost about 50% of its value since March 2022, when the Fed started its rate-hike cycle. This makes dollar-denominated imports into Egypt more expensive.

In April, Ali Moselhi, the Egyptian minister of supply and internal trade, said the country was "very, very, very strongly" considering paying for its commodity imports in non-dollar currencies, reported Saudi Arabia's Al Arabiya news outlet.

Moselhi said Egypt was discussing using the Chinese yuan, Indian rupee, or Russian ruble to pay for its imports but has not reached a deal yet with any of the countries.

Egypt has already started issuing Japanese yen-denominated bonds earlier this year and is planning to issue Chinese yuan-denominated bonds soon as well.

Argentina has started using the Chinese yuan, but one prominent politician is still backing the dollar

Argentina appears to be of two minds about de-dollarizing its economy.

The South American country has already started moving away from the US dollar for some transactions — mainly because the country's economy has run very short on the greenback.

The option it has turned to recently is the Chinese yuan.

In April, Sergio Massa, the Argentinian economy minister, said the country would start to pay for imports from China in the yuan instead of US dollars. Two months later, in June, Argentina's central bank said it was allowing commercial banks to open deposit accounts in the Chinese yuan.

However, Argentinians have been hoarding the dollar for years to hedge against the volatile peso, so it's hard to envision the country completely de-dollarizing.

Javier Milei, the front-runner in Argentina's presidential election, has proposed replacing the peso with the dollar amid a massive slide in the local currency against the greenback. The peso has halved against the dollar so far this year.

Saudi Arabia is open to trading oil in non-dollar currencies

The most high-profile of the newly invited BRICS members is Saudi Arabia, an oil-exporting giant and the de facto leader of the Organization of the Petroleum Exporting Countries cartel.

The kingdom's potential entry into the BRICS bloc is a surprise since it's in a strategic partnership with the US and has an agreement to price oil exclusively in the greenback.

But the energy kingpin has signaled earlier this year it is open to trading in other currencies.

"There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal," Mohammed Al-Jadaan, the kingdom's finance minister, told Bloomberg TV in January.

"I don't think we are waving away or ruling out any discussion that will help improve the trade around the world," Al-Jadaan told the news outlet.

However, Saudi Arabia hasn't started pricing its prized oil exports in non-dollar currencies yet and hasn't accepted BRICS's invitation to join the bloc so far.

Ethiopia is dealing with a foreign-currency crunch

A civil war broke out in Ethiopia in late 2020, further destabilizing the African country's economy, which was already reeling from COVID-19-wrecked supply chains and a drought.

Ethiopia's civil war ended in 2022, but like Argentina and Egypt, it continues to face economic uncertainties and is experiencing a foreign-currency shortage.

Ethiopia doesn't appear to have publicly said anything about moving away from US dollar-dominated trade. The country's bid for membership seemed to have stemmed from a desire for an alternative world order.

The Ethiopian prime minister, Abiy Ahmed, tweeted on August 24 that BRICS endorsement of the country's membership was a "great moment" for the country.

"Ethiopia stands ready to cooperate with all for an inclusive and prosperous global order," he tweeted.

Read the original article on Business Insider