China’s de-dollarization message finds a receptive audience in North Africa

Earlier this year, three of five countries in North Africa—Tunisia, Algeria, and Egypt—applied to join BRICS, the loose affiliation of Brazil, Russia, India, China, and South Africa, which exists to challenge US influence in the global economy. Ultimately, BRICS decided not to admit Algeria and Tunisia as new members. However, the inclusion of Egypt and enthusiasm for the BRICS project in Algiers and Tunis foreshadow that North African states may become some of the most aggressive advocates for one of BRICS’s top priorities: de-dollarization.

A coordinated and concerted de-dollarization effort in North Africa poses a significant threat to US interests in the region and the African continent at large by existing regional trade groupings and agreements. US policymakers must recognize the gathering financial storm in North Africa and respond accordingly.         

The expansion of BRICS should concern US policymakers for several reasons, including the group’s commitment to global de-dollarization, which has, thus far, shown limited progress but does pose a long-term threat to the dollar’s hegemony. De-dollarization attempts to replace the dollar as the world’s preferred reserve currency, thereby significantly reducing US influence over the global financial system. Any coordinated de-dollarization effort, especially toward China’s renminbi, would diminish the ability of the United States to run large federal deficits and keep interest rates on accumulated debt relatively low.

Typically, de-dollarization means the movement away from US dollars in favor of the local currency. Countries wanting to regain control over monetary and exchange rate policy, recoup seigniorage, and reduce foreign exchange risk in the financial system and other sectors have initiated de-dollarization policies to varying degrees of success in the past.

However, the goal of the BRICS effort is not to increase the use of local currencies—although “alternative financial plumbing” is an interim step of the de-dollarization process—but rather to replace the US dollar with the “R5,” a reference to the five currencies used by the founding BRICS members: the renminbi, ruble, rupee, real, and rand, or with other multilateral central bank digital currency (CBDC) as the new global currency that undergirds international finance. In practice, China and its BRICS partners are pushing de-dollarization as an economic weapon to reduce US influence in the global financial system.

In addition, de-dollarization would undermine the effectiveness of US sanctions regimes, a critical foreign policy tool in the fight against terrorist networks, rogue regimes, and criminal networks. These sanctions rely on the SWIFT financial system, which is a network that banks use to communicate with each other securely. It currently powers most international money and security transfers. However, switching to a multilateral CBDC would make SWIFT obsolete.

BRICS capitalizes on members’ trade group affiliations

When BRICS expanded its membership in August, much of the attention was focused on the domestic economies of six new members: Argentina, Ethiopia, Egypt, Iran, Saudi Arabia, and the United Arab Emirates (UAE). However, the true value of BRICS expansion is not simply in the inclusion of petrol-producing states but also in the trade groups of which these countries are members.

The original five BRICS countries are all leading members in regional trade arrangements: China in the Regional Comprehensive Economic Partnership; India in the South Asian Association for Regional Cooperation; Russia in the Eurasian Economic Union and the Commonwealth of Independent States; Brazil in the Southern Common Market; and South Africa in the Southern African Customs Union. If BRICS successfully launches the R5, there is a legitimate threat that the trade groupings of these countries will also feel compelled to adopt the R5—at least alongside the US dollar, if not as a replacement.

It might appear counterintuitive for BRICS to reject Algeria’s and Tunisia’s membership applications. After all, BRICS expansion is intended to diminish US influence in the global financial system while increasing its own. However, upon closer examination, the rejection of the two North African countries…