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Amid global competition and economic shifts, the BRICS group has emerged as a key player challenging the dominance of the dollar in the global financial system. These developments come as Donald Trump, the U.S. presidential candidate, recently promised a 100% tariff on goods from countries moving away from the dollar. However, could such measures backfire, potentially challenging the U.S. economy instead of strengthening the dollar?

The Dollar’s Historical Role from Bretton Woods to Today

The current global financial system originates from the 1944 Bretton Woods Agreement, which pegged the dollar to gold and other currencies to the dollar. This system provided financial stability while granting the U.S. control over the global financial order.

In 1971, however, President Richard Nixon decoupled the dollar from gold, effectively dismantling the system. This decision led to an unprecedented rise in U.S. national debt, which soared from $400 billion in 1971 to a staggering $35 trillion by 2024.

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The Rise of BRICS and the Dollar’s Challenge

As the U.S. grapples with debt and trade deficits, BRICS—comprising Brazil, Russia, India, China, South Africa, and new members Egypt, Ethiopia, Iran, and the UAE—has naturally claimed a larger share of the global economy. With 35% of global GDP, BRICS now surpasses the G7’s 30% share.

BRICS’ Options for a New Financial System

Establishing a shared financial system is complex, but historical models could guide BRICS:

1. A Common Currency Like Europe’s ECU: The European Currency Unit, designed to address post-Bretton Woods volatility, eventually led to the euro.
2. Bancor: Proposed by John Maynard Keynes at Bretton Woods, Bancor was a currency based on a basket of essential commodities like oil and wheat. Although the U.S. opposed it, Bancor is now gaining attention amid global trade instability.

mBridge: A Bridge to the Financial Future

Beyond a common currency, China, in collaboration with Thailand, the UAE, and Hong Kong, has developed the mBridge platform. Powered by blockchain technology, mBridge facilitates international payments without intermediaries, using Central Bank Digital Currencies (CBDCs).

This innovation enables faster, more cost-effective, and direct financial exchanges. For instance, a Thai company can sell rice to a Singaporean trader in Thai baht or any agreed-upon currency.

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Gold Accumulation: A Signal of Change?

Over the past two years, BRICS countries have sent a clear signal to global markets by purchasing gold at record levels. Historically, gold has served as a stabilizing foundation for monetary systems during financial crises.

The Dollar, Debt, and U.S. Responses

To maintain the dollar’s dominance, the U.S. has resorted to aggressive measures such as imposing tariffs. However, with mounting national debt and waning global interest in U.S. bonds, can America avoid an impending crisis?

Conclusion

With vast natural and economic resources, BRICS is poised to design a financial system aligned with 21st-century economic realities. This historic shift could mark the end of 80 years of dollar dominance and the Bretton Woods framework.