Can the Global South get out of the US-dominated financial system?

Is it possible to create systems of trade, finance, and funding outside the US-dominated system? Is the BRICS bloc able to build the necessary alternatives to challenge this system? Economists, academics, and political leaders participating in the IV Dilemmas of Humanity Conference in São Paulo tackled this pressing question that today the nations of the Global South confront. Nations, who find that their plans for poverty alleviation, economic sovereignty, and trade with their neighbors, are held back by restrictions imposed by the United States and their debt commitments, for which they need a reserve of dollars.

The panel “New Financial Architecture” on April 10, featured Yaroslav Lissovolik, Russian economist and Senior managing director and head of research at Sberbank Investment Research; Paulo Nogueira Batista Jr., Brazilian economist, former executive director of the International Monetary Fund (IMF), and vice-president of the BRICS New Development Bank; and Chinese Professor Gong Gang of the Yunnan University of Finance and Economics. The panel was moderated by Indian economist Subin Dennis, of Jawaharlal Nehru University, New Delhi, and researcher at the Tricontinental: Institute for Social Research.

Regional platforms

For Russian economist Yaroslav Lissovolik, the crisis facing the world’s economies, and particularly those of the Global South, is unprecedented. For him, not only are these crises more frequent, but “there is incapability of the system to deal with the major challenges…whether its energy crisis, sustainability transition, and last but not least the debt issue.”

Meanwhile, he stated, “in terms of trade, the countries that have preached liberalization (i.e. the United States) are now essentially the sources of rampant protectionism in terms of investment, not in paradigm of economic efficiency and opportunity, but friendshoring, reshoring, different considerations that seem to be outside the economic text books that have been written.”

In that sense, new solutions must be considered and existing alternative structures must be strengthened and amplified. Lissovolik, echoing interventions and presentations of other conference participants, defended that regionalism is an important mechanism to consider, creating regional blocs in the financial system and in the trading system, thus “bringing together the resources of the global south at the regional level and through this aggregation, coming up with platforms that have a greater wave and effect” in the global economic system. He argued that a key component of what could be a new global economic architecture is creating a layer of regional governance in the areas of trade, finance, and investment.

In that vein he proposed strengthening, amplifying, and building the following:

1. Regional trade arrangements

---Existing examples include MERCOSUR, ASEAN, and the EU

---Bringing together regional trade arrangements with global institutions would give greater leverage to Global South nations, noting that it is clear that “the collective power of these regional groupings is far greater than the feeble, weak global institutions like the WTO

2. Regional financing arrangements

---The regional IMFs have greater expertise in terms of regional specific issues and more info about local economies. The collective resources of the regional financing agreements are greater than the resources of the IMF 

3. Regional investment projects: 

---Building alternatives to the World Bank by building platforms for regional development banks. A platform that would be able to bring together regional development banks would have far greater resources than the WB and would have greater ability to work closely with different countries and would have a greater sense of the context and needs of regions.

The central node for bringing together these different regional formations, Lissovolik argues, would be within BRICS+, which will have to take more decisive steps towards expansion and building solid institutions. The goal of this regional layer, is to reverse the “cumulative causation” meaning regions that are more developed continue to be further advanced and accumulate wealth, and the ones that are disadvantaged and underdeveloped are unable to catch up.

“For the first time there is a unique opportunity for the Global South to deliver a decisive contribution to global economic governance, [creating] a new layer of global economic governance that would be represented by regional institutions,” he highlighted.

BRICS challenges dollar hegemony

Chinese professor Gang Gong expanded on the central role that BRICS can play in building a new financial architecture to fundamentally challenge dollar hegemony and lead the much spoken-about process of “de-dollarization”.

Delivering a scathing indictment of the fundamentally flawed current international system, Gong reminded participants that “The current international financial architectures have a single solid currency that is US Dollar…with no forces such as international commission to constrain its issues.” This, he added, is even more terrifying when “the dollar is in the hands of a private central bank”. This has meant that “every time the monetary base of the dollar is issued, the private assets are inflated,” according to Gong, who estimated that “the federal assets has expanded from only 1.4 billion in its early days to now 6.7 trillion.” These private assets are shrouded in secrecy, meaning that it is unknown whether or not these private assets can be used in private business, whether they can be used in trade, or even as collateral when borrowing the money from the bank. 

The unchecked power of the dollar makes it hard to contest, but, Gong reminded, it is not invincible and the US economy faces many internal contradictions because of it. For example, the very dominance and strength of the dollar means that manufacturers have preferred to move manufacturing outside of the country to have lower labor costs. This is a dynamic that Trump himself is seeking to counteract with aggressive tariffs.

On the other hand, the stranglehold of the dollar hegemony on the world’s population has forced nations such as Russia, China, Iran, Venezuela, Cuba, and North Korea, sanctioned and, in some cases, cast out of the US-dominated financial system to build alternative arrangements of trade, finance, and investment.

In this sense, Gong points to a unified BRICS currency and payment/exchange mechanism as a necessary tool, but is one that will take rigorous work to develop and implement as well as great trust and confidence of the partners. Part of developing this system would include BRICS countries strengthening the BRICS central bank, the New Development Bank, by handing over their foreign exchange reserves and using the future BRICS’ currency for trade. The NDB’s reserve of foreign currency would empower it to more strongly intervene in the foreign exchange market.

He warned that there seems to be hesitation in advancing the BRICS currency, given the lack of a direct mention in the final declaration of the most recent BRICS Summit in Kazan. Yet, he noted that the process is still underway and the US is already expressing doubts about what its possible impact could be. “The emergency BRICS is of course a direct and substantive challenge to the hegemony of the US Dollar. Therefore it may surely encounter a fierce reaction from the United States,” the Chinese economist stated.

A new world is being born, while the empire declines

Finally, the former IMF chief and NDB founder Paulo Nogueira Batista Jr. focused on the significance of these discussions in the historical juncture. The growing enthusiasm and efforts for a new financial architecture happens at a time of great uncertainty, one in which the global hegemon the United States is facing a major crisis, exacerbated by the far-right, billionaire president, Donald Trump. Though, he says, “The country has been in a state of cultural, sociological and political decay for decades, Trump is just an acute symptom and has shown that this decay was greater than imagined.”

The economic and political turbulence of the last two weeks, with the threats of reciprocal tariffs against historic allies and key trading partners of the United States, has put an uncertain world in an acute state of instability.

He declared, “IMF is a discredited system..the WTO, in short, practically no longer exists. There is no longer any confidence in the dollar, especially after the confiscations following the start of the war in Ukraine.”

Nogueira Batista Jr.’s assessment of what comes after the infamous Bretton Woods institutions, echoed other speakers but cautioned that the transition is a long and arduous process. “Where can this new financial architecture come from? From Russia, China and BRICS, which has Russia and China together.” Yet, “what the BRICS has done in this sense is just some arrangements, but still based on old central banks and institutions, which are bankrupt.” He emphasized, “A new financial architecture will not come from the BRICS in the short term. Russia has made demonstrations that are also proving to be good, but China is the one that is slowly, quietly changing this architecture.”

He reminded that despite the fact that the process advances slowly, “De-dollarization is already underway, we know that transfers in countries are being made in national currencies, Russia and China, India and China are almost all doing it this way. Even the function of providing support to other countries is no longer that of the IMF, the Bank of China is already doing it, either in China's currency or in dollars.” This is already an important advancement, he said.

The panel’s moderator, Indian economist Subin Dennis, reminded participants that the aspiration and need of nations of the Global South to counter the US-dominated financial system is a historic one, and while much work remains, this possibility looks closer than it ever has.