World News: Why Washington and BRICS tell the same story about de-dollarization – INA NEWS

There is a strange paradox at the heart of the whole de-dollarization trend. Both the BRICS upstarts seeking alternatives to the dollar and the aging hegemon trying to forestall this process have, at least officially, coalesced around a similar but not entirely accurate narrative: that the gradual pivot away from the dollar is primarily driven by Washington’s weaponization of its currency.

The sanctions on Russia in 2022 certainly did mark the definitive moment when Washington gave up on any notion of being the benevolent custodians of the global dollar system and decided to use it instead as a bludgeon against geopolitical adversaries. Geopolitically, this was a watershed moment, and historians of the future will almost certainly see it as such.

But is it really the singular reason countries are scurrying to find alternatives to the dollar? The claim that de-dollarization is ultimately a response to US coercion sounds like something akin to a BRICS version of a Niemöller-style warning about indifference in the face of persecution: “First they came for Russia; next they might come for us.” The implication is that any country could be the next victim of Washington’s capricious wrath.

But hardly anyone stops to ask how realistic this actually is. Is China – a systemically central economy – really at risk of Russia-style sanctions? Would the US really dare to impose hardcore sanctions on India, Brazil, or BRICS-adjacent Türkiye? If the US can’t even get away with Trump’s Liberation Day tariffs without nearly blowing up the Treasury market, does anybody really believe it could freeze China’s reserves without five minutes later ushering in a financial crisis that would dwarf 2008?

Frankly, even sanctioning Russia, which by 2022 was already considerably decoupled from the US market, hasn’t gone all that well.

The quiet expropriation of wealth that nobody is supposed to notice

The real underlying driver of de-dollarization is economic in nature: the US will need structurally negative real rates in light of its high and rising debt load. For reserve holders, that implies a systematic erosion of purchasing power. In that sense, de-dollarization is not a political statement so much as an investment decision. This is a process that began well before the Russia sanctions and would have continued even in their absence.

Since 2014, foreign central banks have stopped buying US Treasuries on a net basis, while US deficits have continued to grow. This little-known pivot point will surely have a place of honor when the final account of the transition to a new system is someday written. In other words, even by 2014, the handwriting was clearly on the wall. The long-term trajectory of US fiscal and monetary policy was signaling trouble. US deficits were no longer episodic and induced by recession, but had become a permanent feature of the landscape.

Let’s fast-forward to 2022 – the year casually cited as the launching-off point for de-dollarization. Certainly, this was an important year and a number of statistics bear that out: central bank buying of gold – essentially a de-dollarization of reserves – spiked that year. But was it all because of the sanctions on Russia? It turns out there was something else going on around that time that may well have spooked a lot of players – especially China.

Over 2020-2022, US federal debt jumped from $23 trillion to over $30 trillion, an unprecedented rise outside of wartime, while the Fed’s balance sheet more than doubled from $4 trillion to $8.9 trillion. Meanwhile, the ostensibly exotic and temporary policy tool of quantitative easing introduced in the wake of the 2008 crisis turned out to be quite permanent. In other words, the troubling signals of 2014 now sounded as if blared through a megaphone.

By 2022, it had probably dawned on most of the world that the US has no credible path to fiscal sustainability and isn’t lifting a finger to find one, so it will almost certainly have to run negative real rates in order to erode the burden of the debt over time. To understand how negative real rates help manage debt levels, think of an extreme example: if you owed a sum of money in Weimar Germany, you would have found it a lot easier to pay it back once the deutschmark hyperinflated – just sell a pair of shoes and you can cover what was before a huge debt.

In fact, during this period of 2020-2022, real US yields were deeply negative: inflation was running around 7-8% (officially), all while the US 10y paid around 1.5%. Such a state of affairs decreases the purchasing power of the dollar. This is not a great option if you’re holding a whole bunch of Treasuries. Analyst Luke Gromen called this an “expropriation” of a nation’s wealth by the Americans. If you have to buy commodities in a currency that is being debauched – and commodities aren’t getting any cheaper – you have a serious problem.

You don’t have to have a PhD in economics to understand that debasement of the dollar and massive inflation is the eventual end-game. The only other option for the US is to let interest rates remain high and then suffocate under the burden of servicing its debt at higher rates – thus also inviting a massive credit crisis. When choosing between a quick death and a slow death, governments tend to choose the latter.

So, in 2022, holders of US debt the world over were staring at a significant loss in real terms. For a private investor, that’s unpleasant. For a central bank holding hundreds of billions in reserves, it’s existentially unsustainable. Deep within the bowls of economic policymaking circles in certain countries, I dare say this state of affairs focused minds no less than the repercussions of the Ukraine crisis.

Even though in 2023 real rates did return to positive territory (barely), the US hasn’t shown the slightest inclination of moderating its fiscal recklessness. It will continue to issue Treasuries at a high rate to cover ever wider deficits and pressure will remain on the Fed to monetize more debt in the next downturn. The problem is now structural and permanent.

Washington and BRICS agree: ‘Let’s not go there’

So, in light of all of this, why all the emphasis on geopolitics? Part of what is going on is the entirely natural mechanism of narrative creation in a world of short news cycles, shorter attention spans, and media-hyped geopolitical drama. Negative real yields and reserve composition don’t make good television, as they used to say. Dramatic geopolitical confrontations certainly do.

But there is also deliberate obfuscation at play – and it comes from both sides of the geopolitical divide.

It hardly needs to be said that Washington makes every possible effort to downplay or deny the de-dollarization process. Most American and other Western institutions prefer to modestly divert their eyes from the palettes of gold being shoved into the central bank vaults of other countries. They go out of their way to quote statistics that show dollar use holding steady (such statistics can certainly be found).

But insofar as the theme of de-dollarization has to be addressed, Washington prefers what it sees as the lesser of two evils: acknowledging some collateral damage associated with the weaponization of the dollar rather than admitting the entire economic foundation of the dollar system is eroding before our eyes.

In April 2023, Janet Yellen conceded that “there is a risk when we use financial sanctions that are linked to the role of the dollar, that over time it could undermine the hegemony of the dollar.” For her, it is merely a question of calibrating a geopolitical tool to minimize the extent to which the rest of the world gets wild ideas about preserving the returns on their investments.

At a House of Representatives hearing from July 2023 called ‘Dollar Dominance: Preserving the US Dollar’s Status as the Global Reserve Currency’, Dr. Daniel McDowell, an international affairs professor at Syracuse University, gave a typical reading of this notion in his testimony:

“The more that the United States has reached for financial sanctions, the more it has made adversaries and foreign capitals aware of the strategic vulnerability that stems from dependence on the dollar. Some governments have responded by implementing anti-dollar policies, measures that are designed to reduce an economy’s reliance on the US currency for investment in cross-border transactions. Although these measures sometimes fail to achieve their goals, others have produced modest levels of de-dollarization.”

There you have it. The cost of pursuing America’s foreign policy agenda has to be acknowledged – but it mostly amounts to “modest levels of de-dollarization.”

Clearly, the US has a tremendous vested interest in keeping its teetering dollar hegemony going and doesn’t want to probe its weaknesses too deeply. Saying “we admit the Russia sanctions made some people uncomfortable” works a lot better than saying “we hope nobody notices that holding dollars in your coffers is a good way of eventually going broke.”

But that raises the question: what exactly does BRICS have to gain by emphasizing the geopolitical angle?

Think about it like this. Let’s suppose you hold a whole bunch of bonds of a certain entity, but you don’t have much confidence in that entity. One thing you would definitely not do is go around broadcasting your doubts about that entity’s solvency. Doing so would be a good way to make the bonds you still hold a lot less valuable.

Now suppose you are actually selling some of those bonds – not fire-selling them, but gradually lightening up your holding on the margins. Because you’re a big holder, people notice. One thing that would be nice to have is some cover for what you’re doing so that you didn’t have to admit publicly that you don’t believe in the solvency of the issuer of your bonds. The moment you did so, the bonds you are still holding would lose a lot of value – not to mention you might provoke a panic that you yourself are unprepared for.

The bond issuer here is, of course, the US government and the bonds are US Treasuries and other related US debt securities. You better be a bit careful what you say unless you want to punch a big hole in your own portfolio, not to mention probably opening yourself up to some sort of unpleasant retaliation. China still holds an awful lot of dollar assets. Other BRICS countries (excluding Russia) also have sizable holdings.

What BRICS actually does is the following: they load up on gold as quietly as possible (gold is now the fastest-rising international reserve asset); they seek to boost non-dollar bilateral settlement; they secure local-currency swap lines; they buy shorter-duration Treasuries; they work on new financial infrastructure.

But what they say at the official level tends to be very bland and mostly standard fare about diversification or managing risk. China’s State Administration of Foreign Exchange (SAFE) is a hugely important institution – the real manager of the country’s reserves. It puts out annual reports that are, to put it gently, a bit dry to read. Importantly, it does not publicly frame its reserve shifts as a repudiation of US debt. Anyone looking for spicy rhetoric in a SAFE report tends to be sorely disappointed.

When the BRICS world does step up the rhetoric a bit, they tend to lean into the geopolitical angle: the US is abusing the privilege that comes with presiding over the system; the US applies double standards; the US is interfering in the sovereignty of other countries. These allegations are absolutely true and certainly factor in the calculations of BRICS governments. But this is also a way of underemphasizing what’s really exerting a magnetic pull on the de-dollarization process.

What we end up with, somewhat bizarrely, is two competing geopolitical blocs both dancing very gingerly around the elephant in the room.

This odd convergence of narratives found a perfect articulation in a Carnegie Endowment analysis from October 2024 titled ‘China’s Dollar Dilemma’. Carnegie is firmly situated within the Washington policy mainstream, so its framing is a reliable measure of establishment thinking.

The piece opens with a familiar claim: “Increasingly intensifying US economic sanctions targeting Russia’s financial system have deepened concerns in China over its extensive dollar asset holdings and the Chinese financial system’s reliance on dollars.”

From there, it selectively highlights only the motives that Chinese officials and scholars are comfortable stating in public: fear of sanctions, fear of asset freezes, and fear of US overreach. It cites an influential Chinese economist calling for reduced Treasury exposure due to sanctions risk, and quotes a prominent state-backed journal warning that China’s reserves are “increasingly becoming ‘hostages’” – a direct reference to the freezing of Russia’s central bank assets.

All of these points do appear in Chinese discourse, but precisely because this is what Chinese officials can safely say. US behavior can be criticized, but less so the dollar’s viability. China’s diversification is attributed to external threats, not to internal assessments about long-term returns, negative real yields, or the trajectory of US fiscal policy. These arguments sit comfortably within China’s public-facing narrative. Carnegie should know full well that China’s actual analysis of the matter extends far beyond what is presented publicly, but it made no attempt to probe that.

But these arguments also sit comfortably within the boundaries of Western establishment discourse. A sanctions-centric explanation allows American analysts to acknowledge discomfort among Global South countries without interrogating the deeper issue of whether US debt has become structurally unattractive. It preserves the image of the US as a rational, stable hegemon rather than a debtor whose fiscal trajectory and monetary regime impose losses on foreign reserve holders. There is no examination of how US fiscal expansion directly increases China’s exposure to interest-rate losses – hardly a trivial issue!

The result is telling: in a piece of nearly 5,000 words, the discussion of US debt sustainability is confined to a single sentence – one that merely projects debt levels out to 2050 without analyzing what those levels mean for the reserve asset status of Treasuries. A reader could easily conclude that China’s diversification is driven almost entirely by sanctions fears. But here’s the kicker: if that reader had been perusing the offering of BRICS publications, that conclusion would only have been reinforced.

The core irony is thus that a long, meticulously argued analysis produced at the heart of the Western policy establishment ends up mirroring the dominant narrative inside the BRICS world itself. Both sides emphasize geopolitics and sanctions risk, and both underplay the basic financial logic that makes US assets less attractive. They arrive at the same explanation for entirely different reasons – but the convergence is unmistakable.

A convergence indeed, but there is ultimately a difference. As far as I can tell, the Washington DC establishment actually believes its own propaganda, whereas the BRICS crowd knows exactly what the real score is and is carefully working to keep the system stable while it is slowly replaced.

Why Washington and BRICS tell the same story about de-dollarization

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