In 1971 the United States, acting unilaterally, ended the gold standard as the basis of the international monetary system. The US dollar became the reserve currency with the result that the US could control the financial markets and print money when it saw fit.
This gives the US tremendous global power and, along with the structure of the World Bank, the International Monetary Fund, and the UN Security Council, means that although there are some democratic countries, there are no state democracies.
Over the years, it has often been argued that building a fairer world requires, among other measures, the democratization of the global financial system. This requires, along with other measures, a move away from the dollar as the main global reserve currency.
There are several proposals to break away from the stranglehold of the dollar. Some have argued that the plans to go against the chokehold of the dollar in the economy of the Global South were central to the motivation on the part of the US to remove Iraq’s Saddam Hussein and Libya’s Muammar Gaddafi from power.
Now there is a new effort to dislodge the dollar’s near monopoly as the main currency of global trade. Saudi Arabia’s decision to accept another currency in exchange for oil is an important development. Move away from the dollar has suddenly escalated by the war in Ukraine.
Immediately after the war, the West kicked Moscow out of the international SWIFT banking system and froze its assets around the world. Russia responded by demanding payment for gas in its own currency – the ruble. Several countries including Germany, India and Saudi Arabia agreed to Russia’s request, allowing them to bypass some of the sanctions.
As a result, the unintended consequences of Western sanctions have been a clear demonstration that international trade can be conducted without dependence on the US dollar. War, of course, is terrible for its victims. But to note that war can lead to different results, ignores the suffering it causes. For example, World War II unleashed unspeakable horrors and lit the fuse in the anti-colonial movement.
New possibilities
The rapidly developing possibility for international trade without the mediation of the dollar is an important moment for the countries of the Global South, which are often seen as vassal states of the US in particular, and the West more generally. The power relations are very strong, as recently seen in Afghanistan when the US provided $9.5 billion from the Afghan central bank, the dollar reserves of other countries held in the US central bank are not safe.
The U.S. has a long history of trying to isolate its economy and impose sanctions if it is perceived as a threat to its power. It goes back to the Haitian revolution against slavery in 1804, and is perhaps most famously encapsulated by president Richard Nixon’s instructions to the CIA in 1970 to “create a screaming economy” in Chile to “prevent. [Salvadore] Allende from coming to power or to unseat him”.
The economic war launched on Russia by the West, including the freezing of dollar-denominated reserves, shows that no country beyond the US is safe. This should be an important wakeup call for the Global South to initiate an alternative financial system that does not depend on the US dollar. The combined GDP of the Brics countries (Brazil, Russia, India, China and South Africa) is greater than that of the G7 group (Canada, France, Germany, Italy, Japan, the United Kingdom and the US, with the European Union being the “non-enumerated member”). These countries can certainly find better ways to work together to build a financial system that is not under US control, which has consistently hindered efforts to develop new and fair rules for global trade.
It seems that the Brazilian President Lula da Silva will try to revive ALBA (Bolivarian Alliance for the Nations of Our America), which aims to develop the economic and political integration of countries in Latin America and the Caribbean. This could accelerate the push for greater economic autonomy in the Global South.
The accession of more countries to Brics could be an important opportunity for the group to put its house in order and become more focused on what it wants in this fast-changing international system. Brics must further strengthen its institutions and the New Development Bank so that they can become anchors that create and support alternative systems for countries in the Global South.
Brics and other countries in the Global South should use this crisis, and the key lessons of Covid-19, to strengthen trade among themselves. This trade must be structured to meet their needs and benefit the Global South. Current international trade rules impose high barriers and tariffs on the ability of developing countries to export value-added products to industrialized countries. But there is a huge untapped market in the Global South. This is a market waiting to be fully utilized and developing countries are bypassing high tariffs and barriers and trade more.
political change
Economics cannot be understood from politics. We will also need a more multilateral system of global governance if we are to build a fairer global economic order. The refusal to find a way to the negotiating table with the goal of negotiating an end to the war in Ukraine is an example of the failure of the current global political system.
The majority of major countries in the Global South have taken a non-aligned position on the war, and have called for negotiations since the war began. But his plea has been heeded by the West which wants to continue the war at all costs by flooding Eastern Europe with more weapons. This is beneficial for the arms industry and allows the US to advance in Europe, which has been slowly moving away from Washington’s influence, but it does not benefit the rest of the world and especially not the Global South.
The prevailing global order does not work for the Global South. It has never worked for the Global South, and has also been described as neocolonial. There are major political differences between the Brics countries but they all have a stake in developing a more representative and fair global governance system, including the World Trade Organization, the International Monetary Fund, the World Bank and the UN Security Council.
The global economic and political dominance of the West is often seen as the natural order. This question of leadership, or advocating for a more just global system, often causes anxiety and an identity crisis, including among South Africans who see themselves as part of the West.
But the stakes are too high for acquiescence to Western dominance in the world. We need a new global order that does not continue the old game of generating wealth in the North and impoverishment in the South. We need a new global order that is as outraged by the atrocities in the Democratic Republic of the Congo, Ethiopia, Yemen, Afghanistan and Guatemala as they are in Ukraine. We need a global order where African people, together with people from the rest of the Global South, can take their rightful place in the world and in world affairs.
Nontobeka Hlela works at Tricontinental: Institute for Social Research and is seconded to the office of the National Security Adviser as a Researcher, she writes in a personal capacity.
The views expressed are those of the author and do not necessarily reflect official policy or position Mail & Guardians