The BRICS Alliance:

The rise of the BRICS alliance has been one of the most significant developments in the global economy in recent years. This group of emerging economies, consisting of Brazil, Russia, India, China, and South Africa, has been challenging the dominance of traditional powers such as the United States and Europe in various ways. One of the most critical areas where the BRICS alliance has been challenging the existing order is in the realm of the international monetary system. In this article, we will explore the BRICS alliance's efforts to reduce the dependence on the US dollar and the challenges it faces in doing so.

The US dollar has been the dominant currency in the international monetary system since the end of World War II. The Bretton Woods agreement of 1944 established the US dollar as the reserve currency, backed by gold at a fixed exchange rate. However, the collapse of the Bretton Woods system in 1971 led to the US dollar's complete dominance as the reserve currency. Today, more than 60% of international reserves and 80% of global trade are denominated in US dollars.

The BRICS alliance has been seeking to reduce the dominance of the US dollar in the international monetary system in various ways. One of the most significant efforts has been to establish alternative financial institutions that can provide funding for infrastructure projects and other development initiatives without relying on the US dollar. The New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) are two examples of such institutions established by the BRICS alliance.

The NDB was established in 2014 with a focus on funding sustainable infrastructure projects in emerging economies. The bank's initial capital was $50 billion, with each member contributing $10 billion. The AIIB was established in 2016 with a focus on funding infrastructure projects across Asia. The bank's initial capital was $100 billion, with China contributing the largest share.

These institutions provide an alternative to the traditional sources of funding, such as the World Bank and the International Monetary Fund (IMF), which are dominated by Western countries. They also provide an alternative to the US dollar-dominated international monetary system. By providing funding in local currencies, these institutions reduce the need for countries to hold US dollars as reserves and conduct trade in US dollars.

Another way the BRICS alliance is seeking to reduce the dominance of the US dollar is through currency swaps. Currency swaps involve two countries agreeing to exchange their currencies for a specified period and amount. This arrangement allows countries to conduct trade and investment without relying on the US dollar.

The BRICS alliance has been active in promoting currency swaps among its members. For example, in 2012, China and Brazil signed a currency swap agreement worth $30 billion. In 2014, China and Russia signed a currency swap agreement worth $25 billion. In 2018, India and Russia signed a currency swap agreement worth $1.5 billion. These agreements provide an alternative to the US dollar-dominated international monetary system and reduce the need for countries to hold US dollars as reserves.

Despite these efforts, there are several challenges that the BRICS alliance faces in reducing the dominance of the US dollar. One of the most significant challenges is the dominance of the US economy in the global economy. The US dollar's dominance is partly due to the strength of the US economy and the fact that it is the world's largest economy.

Another challenge is the lack of cooperation among the BRICS alliance members. Although the BRICS alliance has made significant progress in establishing alternative financial institutions and promoting currency swaps, there is still a long way to go in terms of cooperation and coordination. The members have different political systems, economic models, and interests, which can make it challenging to coordinate their efforts.

Moreover, the US has a strong influence over the international financial system, including the IMF, World Bank, and the global banking system. The US can use its influence to maintain the US dollar's dominance and prevent alternative institutions from gaining traction.

Another challenge is the lack of liquidity and depth in the local currency markets of the BRICS alliance members. The US dollar dominates international trade and investment because it is a highly liquid and widely traded currency. The local currency markets of the BRICS alliance members are still relatively underdeveloped, making it challenging to conduct trade and investment without relying on the US dollar.

In conclusion, the BRICS alliance's efforts to reduce the dominance of the US dollar in the international monetary system are significant but face several challenges. The establishment of alternative financial institutions and currency swaps is a positive step towards reducing the need for countries to hold US dollars as reserves and conduct trade in US dollars. However, the US's dominance in the global economy and its strong influence over the international financial system pose significant challenges to the BRICS alliance's efforts. The lack of cooperation and coordination among the alliance members and the underdeveloped local currency markets are additional obstacles that need to be overcome. It remains to be seen whether the BRICS alliance can challenge the US dollar's dominance in the international monetary system or if the US will maintain its position as the dominant currency for the foreseeable future.