Can the BRICS Challenge the Dollar Hegemony?

While the financial system of today is more globalized than ever, this heightens the risk of fragmentation that could have serious effects on stability of the system as a whole. Given recent shifts in the world’s economic landscape, the once monolithic system of cross-border investments, asset prices, and international payment systems, long dominated by the US, has diversified to the extent that some parts of it could potentially operate freely from the rest. Financial hubs in Asian powerhouses such as Singapore, Hong Kong, and Mumbai, Shanghai, and Shenzhen are catching up with the traditional leaders like New York and London. Capital markets are growing and whereas strong stock markets were once the domain of advanced economies, forcing businesses all over the globe to seek equity capital abroad, many emerging markets now possess flourishing exchanges.

Taking advantage of this less centralized set-up, countries that previously had to issue government debt in American dollars can now do much of it in their own currencies, making themselves more resilient to the system’s recurrent volatility and crises. Can these emerging markets and financial systems replace – or at least challenge - the dominance of the dollar and American financial supremacy? Despite the extensive financial cooperation and increasing interconnectedness among BRICS countries, their activities in the world financial system have been underestimated. Yet, the stakes of BRICS' de-dollarization initiatives are particularly high.