Is the collapse of the dollar's currency hegemony close?

At the end of last week and the beginning of this week, interesting economic news began to arrive from South America. On January 22, the Financial Times wrote that Brazil and Argentina at the summit in Buenos Aires intend to discuss creation of a common currency, which they plan to call Sur (translated from Spanish it means "South"). According to the publication, other South American countries will also be invited to join the currency zone.

The main goal of the new currency at the first stage is reducing dependence on the US dollar in international accounts. The alleged Sur can function in parallel with the Brazilian real and the Argentine peso, acting solely as a means of settlement between countries in foreign trade.

However, in its article, the FT gave an estimate in advance, according to which, if the monetary union of Brazil and Argentina goes beyond international settlements and a single regional currency is established in these countries, the area of ​​its circulation will cover about 5% of world GDP.

January 23 Newly elected Brazilian President Luiz Inacio Lula da Silva confirmed that, together with Argentina, the possibility of creating a common currency is being explored. He also suggested discussing the possibility of establishing common currencies for transactions between the MERCOSUR and BRICS countries. BRICS includes Brazil, Russia, India, China and South Africa, while MERCOSUR is the common market of South American countries. Lula da Silva, as expected, argued his proposals the need to abandon the use of the dollar in foreign trade.

According to the international settlement system SWIFT, in August 2022, the share of the dollar in international currency settlements was 42,6%. In the period from 2021 to 2022, it fluctuated from 39% to 43%, due to declining share of the euro in international settlements caused by the negative impact of the coronavirus pandemic and the energy crisis on the European economy. As of 2012, the share of the dollar in settlements in the global foreign exchange market was 85%. Thus, over the past 10 years, it has decreased by slightly less than half.

The reason for this process was the change in the system of international relations from a unipolar one headed by the only hegemon - the United States - to a multipolar one, the final "poles" of which are still taking shape. Under these conditions, the reduction of dependence on the dollar in international settlements is perceived by major world and regional powers as an instrument for strengthening one's own political independence from the USA.

Throughout 2022, the percentage of mutual settlements in national currencies was continuously increased by Russia and China, Russia and India, China and India, Russia, China and the countries of the Middle East, as well as the BRICS countries. But the scheme with calculations in many different national currencies is not entirely convenient, since it lacks universality. Against this background, the leaders and financial institutions of these countries voiced a variety of proposals: from the creation of a unified settlement system based on the "BRICS multi-currency basket" to the establishment of "golden digital crypto ruble".

The proposal of the Brazilian side to establish a single currency for settlements within the framework of BRICS and MERCOSUR is far from surprising in this regard. However, compared to all "multi-currency baskets" or attempts by any of the countries to promote their currency as a means of international settlements, it is at a qualitatively higher level, since it proposes to create one payment tool for all, which would not be tied to the emission center of any particular state.

What will come of this - we will see in the coming years. In the meantime, Brazil and Argentina have the opportunity to test this scheme on the scale of Latin America, which can already cause the United States a lot of problems with control over the region, which they traditionally consider their "backyard".