Putin has spent years championing de-dollarization — but a new reality is setting in

Russian President Vladimir Putin played host at this year’s BRICS summit.

Russian President Vladimir Putin appears to be tempering expectations on his de-dollarization drive.

Putin has made it clear he’s keen to develop alternatives to the US-dollar-denominated order. He highlighted the subject at the BRICS summit held in the Russian city of Kazan from Tuesday to Thursday.

But moving away from the dollar is tough. His summit organizers advised attendees to bring US dollars and euros because Russian banks prefer these currencies to exchange for rubles.

Russia faces sweeping sanctions over its full-scale invasion of Ukraine and has been locked out of the US-dollar-dominated global financial system, including the widely used SWIFT financial messaging system, making payments and transactions challenging.

Putin opened the summit by calling for an alternative payment system. He said he wasn’t against the greenback but took issue with the weaponization of it.

“We are not refusing, not fighting the dollar, but if they don’t let us work with it, what can we do? We then have to look for other alternatives, which is happening,” Putin said at the summit on Wednesday.

The Kazan Declaration, issued Wednesday, didn’t mention global dollar dominance — but it highlighted alternatives.

“We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners,” the declaration said.

At a press conference wrapping up the summit on Thursday, Putin said the BRICS group wasn’t creating a new alternative to SWIFT but was trying to resolve the issues of payments with national currencies.

The Russian president said the financial messaging systems of Russia’s central banks and other BRICS member states were “sufficient.”

In the past year, reports have said the BRICS group is exploring the creation of a common currency, planning a cross-border payments system involving central banks, and exploring cryptocurrencies.

At least one idea seems to be firmly on the back burner, analysts from ING wrote in a Wednesday note.

“President Putin seems to have kicked the idea of a single BRICS currency into the long grass,” the ING analysts wrote.

“Instead, the focus is on decreasing the use of the dollar and, where possible, increasing the use of BRICS currencies,” they added.

BRICS is a growing group that is de-dollarizing

Now with nine members, BRICS is a group of emerging countries that is expected to drive global growth. It comprises Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates.

A Bloomberg analysis of the International Monetary Fund’s latest growth forecasts shows that BRICS economies are likely to contribute to a bigger share of global growth over the next five years than G7 economies, which includes the US.

China — even though it’s in a prolonged slowdown — is expected to be the top contributor, accounting for about one-fifth of global growth over the five years. This is a bigger share than all of the G7 countries combined.

BRICS member states represent about 45% of the world’s population and 37% of global GDP based on purchasing-power parity.

They also control 42% of bank foreign-exchange reserves, “likely contributing to the global de-dollarisation process,” the ING analysts wrote.

ING’s analysis shows the expanded BRICS group “actively de-dollarising” financial flows — such as cross-border bank claims and broader external debt — as well as using more local currencies via SWIFT.

But BRICS economies have a smaller global presence in global financial flows, limiting the impact of de-dollarization, the ING analysts added. This is also the case in the use of local currencies.

“This growth from a very low base is not an immediate and direct threat to the US dollar, which seems to be retaining its global dominance despite the shifting role of the USA in the global economy and markets,” the ING analysts wrote.

“Nevertheless, BRICS+ has the potential to challenge some DM currencies in the future,” they added, referring to developed markets.

King Dollar is hard to replace

Despite a desire for a more equitable monetary system, the greenback is so pervasive and entrenched in the world’s financial order that it’s extremely difficult to dethrone.

And this is before factoring in the many competing priorities and rivalry among BRICS members.

“The amount of intrinsic problems inside the BRICS union, in my view, makes these cross-border payment systems a kind of a red herring which would not fly anywhere higher than the idea of a BRICS currency,” Alexander Kolyandr, a non-resident senior scholar at the Center for European Policy Analysis, said at a press briefing on Monday.

“A key element that these systems cannot easily replicate is the stability, liquidity, and convertibility of the US Dollar,” Tom Keatinge, the director of the Centre for Finance and Security at the UK’s Royal United Services Institute, wrote in a note on Thursday.

Other issues include what the alternative currencies would be used for and whether the West would sanction such alternative systems, he said.

“The extent to which such alternative payment systems take root will be a function of trust in the form of payment on which the system is based and the extent to which participants in the system want to hold that alternative form of payment,” Keatinge wrote.