January 1, 2024, saw the significant expansion of a major threat to America's financial security. Curiously, the event passed largely without comment from the Biden administration. The trigger for this potential economic time bomb is the BRICS+, an alliance of nations that could soon seek to replace the U.S. dollar as the world's reserve currency. Its success would mean a lower quality of life for all Americans.
The original BRICS was named after an agreement between Brazil, Russia, India, China, and South Africa to develop a multinational financial institution that would act as an alternative to the International Monetary Fund. Meeting at annual summits since 2011, the group quickly set out to recruit new members in order to advance its real goal: overturning U.S. dominance of the global financial system.
On New Year's Day the group added Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates to its ranks. (It's notable that Argentina, previously set to join, rescinded its membership after the election of new pro-American President Javier Milei). By some estimates the BRICS+ countries account for 45 percent of world population, 33 percent of global GDP, and 40 percent of world oil production.
The oil production is crucial, since the BRICS+ wants to be able to purchase and sell oil in its preferred currencies instead of in dollars, as has historically been the case. The reason is simple. Oil is the most important of all commodities, and like other commodities (such as gold, wheat, and other currencies) global buyers both price and buy it in dollars. This gives the U.S. what has been described as an "exorbitant privilege"; since the U.S. is the sole producer of dollars, it can in effect "print" commodities.
The privilege also makes it easier for America to sustain its perennial massive deficits, as well as place restrictions on the ability of other nations to use dollars, as it routinely does through economic sanctions and restrictions on access to the U.S. banking system.
The BRICS+, led by China and Russia, may seek to remove the critical role of the dollar in global finance to weaken America. But the Biden administration seems singularly unconcerned. This past summer National Security Advisor Jake Sullivan stated "we are not looking at the BRICS as evolving into some kind of geopolitical rival to the United States or anyone else," and Treasury Secretary Janet Yellen told Congress that attempts to move away from the dollar are merely a "natural desire to diversify." These views are dangerously misguided; there is no reason for hostile nations to develop an alternative to the dollar other than to undermine the U.S.
The BRICS+ may create an alternative financial world in which member countries' individual currencies, or one they jointly create, will replace the dollar as the global financial standard. If that were to happen the dollar would drop in value, leading to increasing interest rates and higher prices. It would also make it more difficult to service our national debt, which currently stands at more than $34 trillion. Interest payments on the debt are already on track to consume more of the federal budget than we spend on defense. Having to pay more in interest, an inevitable outcome of a devalued dollar, could launch federal spending into an unsustainable feedback loop of more borrowing to pay for higher interest to pay for more borrowing, on and on until default becomes a real possibility.
Unfortunately, not enough attention is being paid to this evolving disaster. Just as Russia, China, Iran, and other hostile nations are increasingly cooperating to advance their military goals, they are also working together to destroy America's economic advantages. Their success is to the detriment of those parts of the world that believe in a market-oriented, rules-based, dollar-supported economic system.
There are numerous steps Washington can take to reduce the danger, such as shrinking the federal debt, encouraging domestic energy production, and discouraging other nations from joining the BRICS+. But first the administration needs to demonstrate that it recognizes the threat, and takes it seriously. Failure to deal with the BRICS+ now makes it more difficult to maintain the dollar's status and puts the prosperity of future generations of Americans at risk.
Gregory Zerzan was Deputy Assistant Secretary of the U.S. Treasury under President George W. Bush.
The views expressed in this article are the writer's own.
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