China's Financial Innovations and Alternatives to the Dollar
China is actively pursuing alternatives to the US dollar-dominated international financial and currency systems through various initiatives, focusing on digital and cross-border payment systems.
Central Bank Digital Currency (CBDC) and mBridge Project
- China has pioneered the development of a Central Bank Digital Currency (CBDC) for domestic use and cross-border transactions.
- The mBridge project is a digital cross-border payment system using CBDCs, initiated by the central banks of China, Thailand, Hong Kong, and the UAE.
- Supported initially by the Bank for International Settlements (BIS), the project now includes central banks from India and the US, with Saudi Arabia joining in June 2024.
- Speculation exists that the US influenced the BIS to withdraw from the project to safeguard the dollar's international role.
BRICS+ and BRICS Bridge Initiative
- The BRICS+ grouping involves original BRICS members and new entrants like Iran, Saudi Arabia, and others.
- A similar initiative, referred to as the BRICS Bridge, has been discussed informally in BRICS+ meetings, aiming to align with mBridge.
- BRICS Clear is a proposed payment and clearing system for BRICS+ countries, noted in official documents.
Petro-Yuan Market Growth and Diversification
- Established in 2018, the Shanghai International Energy Exchange has fueled the petro-yuan market's growth.
- Saudi Arabia and the UAE have begun settling oil transactions in currencies other than the US dollar, challenging the petro-dollar market.
- India has also participated by buying oil from the UAE using rupees.
BRICS Currency Proposal
- The New Development Bank president announced a plan to establish a settlement currency, the "Unit," backed by 40% gold and 60% member countries' local currencies.
- The Unit's gold reserves would remain within national borders, avoiding central bank balance sheets, and be held in escrow.
- This proposal is yet to be officially documented, reflecting caution among BRICS+ countries amid potential US sanctions.
India's Position and Considerations
- While participating in BRICS+ discussions, India is cautious, with External Affairs Minister S. Jaishankar emphasizing no interest in undermining the US dollar.
- However, there's recognition that US economic disruptions might hasten the dollar's decline, prompting India to keep options open.
These developments underscore the shifting dynamics in global financial systems, with alternatives to the US dollar gaining traction among key global players.
