On an overlooked aspect of the current Financial System

The USA has a trade deficit, where we import more products than we export, and a government deficit, where our government spends more than it takes in. This would be a lethal combination for most countries, ending with a financial collapse. For the US, it is fine. While a complex topic, the reason the US can do this boils down to the dollar’s dominance in trade and as a reserve currency. This dominance is everywhere. When a South African farmer wants to sell tangerines to Brazil, he most likely needs to* sell through SWIFT* or a related US network. SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a Western network that connects around half of the world’s cross-border payments. The South African farmer will pay to convert his Rands into USD through this. Then, the Brazilian purchaser has to pay to convert USD into Rual. Through all this, America gets two things. They get extra money by charging both the South African and Brazilian, and they get to see what transactions are occurring worldwide. The extra money is exactly as it sounds: free money for the Fed. The knowledge gained from viewing this transaction is also extremely beneficial. US and European farmers, miners, and other industries pay a lot of money every year to see what countries are buying so they can plan what to grow or produce.

Another thing is that when capitalists sell, say, their factory products, they will most likely get back USD. Instead of converting it into their home currency, which costs extra, they will invest it in the US economy. They may invest it in US real estate and stocks, but mainly in US debt. In this way, the US can always pay its debt and does not suffer a debt collapse (so far). Being the reserve currency comes with more than just financial and market advantages. The US can put crippling sanctions on countries it does not like, such as Cuba, Venezuela, Iran, and Russia. This power is only possible with the dollar being the world’s reserve currency. Russia, in particular, is significant. This is because in 2022, after the Ukraine war, Biden seized 350 billion from Russian oligarchs who had money sitting in US banks. To be clear, I am not a supporter of Russia’s war in the slightest, and I understand why Biden did it. That said, the effect is that any country that may not be the best of friends with the US can see this as a potential problem. A Chinese businessperson may be slightly more hesitant to put their money in US banks, further eroding the trust in the US system. I do not even really need to explain how Trump’s tariffs/general actions are, of course, terrible in this way. These tariffs are bad for everyone short term, but they are worse for the US in the long term, as markets will adapt in ways disadvantageous to the US.

BRICS+, a conglomeration of countries including China, India, Russia, six more rising industrial powerhouses, and dozens of interested partners, have long realized this advantage for the West. Thus, what does the West expect? It has a system set up that benefits it financially, in markets, and in power. It is slow, expensive, and inconvenient. It is no wonder these countries want to develop a more world-centered system.

One thing must be made clear. These countries do not want to eliminate the US dollar, at least not yet. After all, all these countries’ governments and capitalists have their money in US debt. Instead, they want to replace the system that gives the West an unfair advantage. In the long term, capitalists and central banks could put just some of the USD they got back into their home currency, potentially hurting the USD. Yet, let’s not get ahead of ourselves. The USD will remain the world’s reserve currency for now and the foreseeable future. In fact, a new BRICS system could likely use the USD as its reserve currency.

We can see an example of this on a smaller scale with Tether. Tether is a cryptocurrency pegged to the USD, also called a stablecoin. This allows its users to use Tether as a substitute for USD without going through the US banking institutions. Consequently, Tether is used in countries like Russia, Iran, and Venezuela, allowing citizens and businesses to avoid sanctions. Since Tether is a private company not located in the US (not located anywhere, really), it is not under the same pressure as banks. The crazy thing is that Tether has 350 million users worldwide and is the most traded cryptocurrency in the world. All this has only happened in the last couple of years, and it provides a direct model for BRICS, specifically China, to set up. We can envision a BRICS stablecoin tied to the USD. This would keep the dollar as the world currency, WHILE allowing for a separate financial system to develop without the advantages Western countries got from the Western system. If this can be as successful and useful to BRICS+ as I have just laid out, it could have a disastrous effect on the US and EU financial systems.