Iran’s Central Bank Governor, Mohammad Reza Farzin, has announced plans for a joint financial institution with BRICS nations during a recent gathering of Russian economists in St. Petersburg. Farzin underscored the dedication of Iran and Russia to enhance bilateral financial collaboration by promoting national currencies over the US dollar.
Farzin highlighted that using the ruble, yuan, dirham, and rial in transactions would help surmount trade barriers between Iran, Russia, China, and other nations. The proposed institution, modeled after the Financial Action Task Force (FATF), seeks to deepen financial ties among BRICS members.
Additionally, Farzin invited Russia to join the Asian Clearing Union (ACU), which includes India, Pakistan, and Belarus, with Iran already a member. The ACU aims to lessen the US dollar’s dominance in transactions among its members, thereby boosting economic resilience in the face of international sanctions. This regional financial integration marks Iran’s forging of economic alliances with similar-minded countries.
De-dollarization Trends Gain Momentum
The global dominance of the US dollar has waned over the past decade. China, the world’s second-largest economy, has been cutting back on its US Treasury bond holdings while bolstering its gold reserves. This trend forms part of a broader de-dollarization movement, where many nations diversify their reserves by increasing gold holdings and making use of local currencies for international transactions.
China’s gold reserves saw an uptick in the first quarter of 2024, contributing to its record-high foreign exchange reserves. Meanwhile, Japan, despite its alliance with the US, has been offloading US bonds and shares, driven by concerns over the US economy’s trajectory and mounting debts.
Financial experts in China point out that while the US economy’s nominal GDP growth rate might appear positive, it is partially fueled by major inflation, which accumulates risks. Emerging economies, particularly China, are outpacing the US and its allies, becoming trade partners for numerous countries, potentially eroding US trade dominance.
BRICS nations—Brazil, Russia, India, China, and South Africa—now hold a larger share of the global economy compared to the G7 developed economies. The expansion of US government debt, reaching $31.46 trillion, has led several countries to adopt de-dollarization strategies to safeguard their economies. With global debt levels deemed unsustainable, countries are increasingly seeking financial alternatives.
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