The global economy is a battleground where currencies fight for supremacy. For decades, the US dollar has reigned as the world’s primary reserve currency, a position that has allowed the United States to wield disproportionate control over international trade and global finance. However, in a constantly changing world, this hegemony faces growing challenges. One of the most recent comes from the BRICS (Brazil, Russia, India, China, and South Africa), which have proposed the creation of an alternative payment system based on central bank digital currencies (CBDCs) called "mBridge." Although promising, this initiative raises important questions about its real ability to displace the dollar and the viability of alternatives in a market dominated by cryptocurrencies like Bitcoin.
Dollar dominance: an empire in decline?
Since World War II, the dollar has been the cornerstone of the global financial system. Its status as the world’s reserve currency has given the United States significant power, allowing it to finance its deficit, impose economic sanctions effectively, and maintain global influence that few nations can match. However, this global dependence on the dollar has also created tensions, especially among countries that view dollar hegemony as a tool of economic oppression.
Despite its historical strength, the dollar faces increasing pressure. The Federal Reserve’s expansive monetary policies, coupled with a growing national deficit, have eroded confidence in the long-term sustainability of the dollar. Additionally, economic sanctions imposed by the United States on countries like Russia and Iran have led many nations to seek alternatives to the dollar, fearing they might be next on the list.
The BRICS: a block with real potential?
The BRICS, a group of emerging economies representing a significant percentage of the world’s population and GDP, have long sought to create a counterbalance to the developed economies dominated by the West. Although they initially promised to become a transformative force in the global economy, the reality has been more complicated. Political, economic, and cultural differences among member countries have limited their ability to act concertedly.
The "mBridge" project is one of the BRICS' most ambitious attempts to reduce their dependence on the dollar. This blockchain-based payment system aims to enable international transactions without relying on the SWIFT system, which aligns with Western interests. While this initiative has generated considerable interest, doubts arise about its real capacity to challenge the dollar’s dominance.
mBridge: promises and limitations
mBridge, as a CBDC-based payment system, offers several potential advantages. By allowing BRICS member countries to conduct transactions directly in their own currencies, it eliminates the need to use the dollar as an intermediary. Additionally, being based on blockchain technology, mBridge could offer faster, more secure, and less expensive transactions.
However, the adoption of mBridge faces significant challenges. First, implementing an international payment system requires a high degree of trust and cooperation among participating countries, something that has not been easy to achieve in the past. Political and economic differences among BRICS countries are significant and have prevented the bloc from acting as a unified force in other areas. Additionally, developing and adopting new financial infrastructure on a global scale is a complex and costly process that could take years to materialize.
Bitcoin: the real challenger to the dollar?
While the BRICS are trying to develop their payment system, Bitcoin and other cryptocurrencies are gaining ground as viable alternatives to the dollar in international trade. Unlike mBridge, Bitcoin is already a global decentralized network that is not controlled by any government or central entity. This gives it flexibility and resilience that CBDCs, including those proposed by the BRICS, cannot match.
Bitcoin offers an alternative solution to traditional currencies and CBDCs by enabling global transactions without intermediaries. Additionally, its deflationary nature contrasts with the expansive monetary policy of the dollar, making it an attractive haven for those seeking to protect their wealth from inflation and monetary instability.
However, Bitcoin also faces significant challenges, such as price volatility and regulatory concerns in many jurisdictions. Despite this, its adoption continues to grow, especially in countries where local currencies are unstable or subject to strict capital controls.
A critical view: challenges for BRICS and the dollar
The BRICS’ attempt to challenge dollar hegemony is an ambitious effort, but it is not without risks and limitations. While mBridge could offer a viable alternative in the long term, the reality is that the dollar remains the dominant reserve currency, and displacing it will not be easy. The United States, with its robust economy and global influence, will not relinquish its position without a fight. Additionally, the same internal fractures within the BRICS could hinder the success of their payment system.
On the other hand, Bitcoin represents a more immediate threat to the dollar’s dominance. Although it faces its own set of challenges, its decentralized nature and ability to operate outside traditional financial structures make it a formidable competitor in the growing global payments market. If the BRICS truly want to challenge the dollar, they could benefit from taking a closer look at Bitcoin’s model and considering how decentralized technologies can offer more agile and resilient solutions in an increasingly interconnected world.
Conclusion
The BRICS initiative to create an alternative payment system to the dollar is a significant step in the evolution of the global financial system. However, its success is far from guaranteed. While mBridge offers the promise of financial independence for the bloc’s countries, its implementation faces substantial technical, political, and economic challenges. On the other hand, Bitcoin and other cryptocurrencies have already demonstrated their ability to operate on a global scale, offering a more immediate and possibly more viable alternative to traditional currencies.
Ultimately, the future of the dollar and the global financial system is at stake. While the BRICS may play a role in this future, it is likely that decentralized technologies like Bitcoin will play an even more crucial role. The question is not just whether the dollar will lose its hegemony, but also what forms of money will emerge to replace it in a world that is increasingly multipolar and technologically advanced.
Image of my creation and property (Canva)
