As an example of a joint megaproject, China and Russia will share the costs of building a new gas pipeline, “Power of Siberia 2,” which will transport Russian gas to China via Mongolia. A major policy to be implemented by China and Russia, alongside their BRICS+ allies, is dedollarization, trading in their own currencies instead of the dollar.

This implementation of dedollarization, combined with China’s strategy of buying massive quantities of gold, will abruptly undermine the dominant role of the American dollar on the global market, destabilizing the institutions resulting from the “Bretton Woods agreement.” Below, I will present some details about the Bretton Woods agreement and the ways in which the Chinese are trying to destabilize the current global financial structure, a goal that Xi set out since the 2008 financial crisis.

What is the Bretton Woods Agreement?

The Bretton Woods Agreement was signed in 1944, establishing a new international monetary system. Following this agreement, the International Monetary Fund (IMF) and the World Bank (WB) were created, establishing the American dollar as the main global reserve currency but tying it to gold as a guarantor of the exchange rate. The system allowed for post-war financial stability but was abandoned in 1971 when, under President Nixon and at Kissinger’s initiative, the convertibility of the dollar into gold was dropped.  After this, the international monetary system transitioned to a regime of floating exchange rates through the Jamaica Agreements of 1976, consolidating the role of the American dollar as the global reserve currency. The economic strength and political stability of the United States, combined especially with its military power, continued to support the dollar’s dominance.

The size of the US economy, the influence and liquidity of its financial markets made the dollar an attractive currency for international trade and reserves, and the setting of oil prices in US dollars (the “petrodollar” system) created a huge global demand for the dollar. In recent decades, even though the value of the dollar is no longer determined by gold, the Bretton Woods institutions have remained in operation and have influenced financial decisions worldwide, with the US being the only country with veto power at the IMF and WB. However, today, as BRICS+ countries assert and demonstrate that we are already in a multipolar world, and the US is unstable and in significant decline, consolidating a financial system where rates are determined by gold, not the dollar, becomes a priority. There are thus three initiatives by China, Russia, and their allies that clearly aim to destabilize the current global financial system to be replaced with one imposed and agreed upon by BRICS+.

Dedollarization

The BRICS+ initiative to reduce dependence on the American dollar in international transactions is an essential component in destabilizing the Bretton Woods institutions. At the last BRICS+ meeting, members discussed the possibility of creating a new international reserve currency to replace the dollar in transactions between member states. BRICS+ countries and other emerging economies are attracted to this financial initiative not only because they will reduce the volatility of their own currencies but also because they will thus be able to replace the US’s hegemonic policy with the non-interventionist policy of China and Russia, countries that seek partnerships based on equality, sovereignty, and mutual respect, as they demonstrated at the recent meeting in Beijing.

Another crucial factor that makes the BRICS+ initiative advantageous for emerging economies is that China lends financial support to Global South countries at a much more advantageous rate than the IMF or World Bank, thus being a much more comfortable and reliable ally in current and future geoeconomic project. National currencies are already used in 95% of trade between BRICS+ countries, an enormous figure considering that BRICS+ countries constitute 36% of the world’s GDP.

Gold Purchases

China has bought huge quantities of gold in recent years, the most gold ever purchased by a country in such a short time, the price of the yellow metal (ironically) reaching its highest level in the last decades. This move aims to strengthen the yuan and reduce Chinese dependence on the American dollar, as gold is a safe asset in times of global economic uncertainty, a period we are living through as a consequence of the large number of conflicts in which the US is indirectly involved. Massive and continuous gold purchases are also useful as a form of insurance against possible economic sanctions and currency instability We can thus conclude that the amateurish sanctions imposed on Russia by Western states have had an integrative and catalytic effect on global financial reorganization, forcing Russia and China to seek alternatives to the dollar-dominated system, accelerating dedollarization initiatives and gold purchases, and generating economic and political cooperation among anti-Western countries, thus strengthening their common collaboration.

Although China is still officially ranked 5th among the countries holding the greatest gold reserves, a top financial analyst specializing in the gold market, Jan Nieuwenhuijs, estimates that about two-thirds of the Chinese central bank’s gold purchases are undeclared, so China’s gold reserves are approximately 5,400 tons, much more than the official figure of 2,250 tons, so China would rank second in the international ranking.

Thus, China’s dedollarization is much more pronounced than it appears from statistics. In addition, the amount of gold held by the private sector in China is approximately 25,000 tons, so if the private and public sectors are taken together, China holds about 30,000 tons of gold compared to approximately 34,000 tons held by the US (8,000 held by states, 26,000 held privately. The US seems to have already been dethroned by China if we consider the loyalty of the private sector to the country compared in both countries, and the fact that most businesspeople who own companies in China are Chinese nationals, which cannot be said about companies in the US. Additionally, many other emerging economies are imitating China’s actions and are also buying gold at a rapid pace, so China and its BRICS+ allies are all among the top international gold buyers in the last 2 years.

The only BRICS+ country that has recently started selling some of its gold is Russia, a predictable move due to the costs of the war in Ukraine, but also considering that BRICS+ countries have also declared that a new world financial order can be based on the price of natural resources, which are abundant in Russia.

It is clear that BRICS+ members have not only declared that they aim to build a new world financial order but that they are already prepared for announcing the establishment of this financial system based on gold and natural resources according to the plan conceived by China and Russia.

China sells US debt

The third aspect of dismantling the US-controlled financial system is China’s sale of US debt. Ranked second among US debt holders, owning about 10% (800 billion dollars) of the total debt, China has recently started selling the largest quantities of US Treasury bonds in history, action which can lead to excessive increases in interest rates in the US, respectively the weakening of the dollar and high inflation, but also the destabilization of global financial markets dependent on the dollar, consequently the economies of almost all countries except BRICS+. On his Telegram channel, Romanian economist Dan Diaconu also showed that this Chinese initiative to demand money on held American debt aims to launch the new BRICS+ financial framework even this year.

Impact on the Global Financial System

 Even based on this brief analysis, it is clear that China’s and other BRICS+ members’ efforts to reduce the dollar’s influence will have major and immediate consequences on the global financial system. Chinese actions have provoked much criticism from American analysts who have declared that the yuan is not yet ready to replace the dollar given the strict capital control and lack of transparency in Chinese monetary policy. However, these criticisms are superficial and volatile, as China and BRICS+ allies want something else, namely to reduce countries’ dependence on any currency and replace the Bretton Woods system, where currencies are dependent on the dollar, with one where gold and natural resources determine exchange rates, adhering to the non-interventionist policy preferred by Global South countries. 

EU, the True Loser of the ‘Gold Rush’

Today, we can clearly see that the trade-based ‘cold war’ declared by the US against China, as well as the sanctions imposed on Russia, have only managed to accelerate dedollarization initiatives and destabilize the Bretton Woods system. It is clear that soon we can expect an announcement from BRICS+ regarding this new international monetary system. Although emerging countries have united against the US, it will certainly remain in the short-term future one of the two largest economies globally, but in decline and with its prestige damaged, we can predict what this status will entail. In contrast, as China and its allies in Asia, Africa, Latin America, and even Eastern Europe consolidate their economic and political positions, the European Union seems to be the true big loser of the 21st century. Among other things, the aggressive US policy of subordinating the EU, which includes supporting wars and sanctions, has had a significantly devastating impact on European economies, and the EU is already facing major challenges in maintaining economic competitiveness on the global stage.

In 1960, EU economies accounted for about one-third of global GDP, but today they represent only 14.8%, and the trend is one of continuous decline. The EU’s GDP grew by only 0.5% last year, while the US GDP grew by 3.1%, China’s GDP by 5.2%, and even Russia’s GDP grew by 3.6% despite the imposed sanctions. Also, EU exports now account for only 13.7% of total global exports, while China, a single country, accounts for 18.2%.

The conclusion is that no matter how much Ursula von der Leyen and other high-ranking EU officials insist that we must impose new sanctions on China and Russia like our “American parents,” the truth is that based on our geoeconomic dependence on the US and not on China, we must look across the Atlantic for the culprit for the EU’s economic decline and seek constructive solutions from Washington, where the steering wheel of euro-Atlantic leadership still lies. We should know anyway that maybe the US economy will be able to survive the imposition of a new international financial system prepared by BRICS+, but it seems that we in the EU do not have much of a chance…

By Daria Gusa