Current Affairs Model Answer – BRICS and De-dollarisation
This BRICS de-dollarisation model answer is written for the CSS Current Affairs paper. It explains what BRICS is, why de-dollarisation is discussed, what its limits are, and what it means for Pakistan — and it ends with the balanced argument an examiner rewards: the dollar’s dominance is being questioned, not replaced overnight, and Pakistan’s interest lies in diversification without confrontation.
At a glance
- Paper: CSS Current Affairs
- Focus: what BRICS is, why de-dollarisation is discussed, what its limits are, and what it means for Pakistan
- Argument: the dollar’s dominance is being questioned, not replaced overnight, and Pakistan’s interest lies in diversification without confrontation
Outline
- Introduction
- Why the Dollar Dominates
- Why BRICS Members Discuss Alternatives
- What De-dollarisation Actually Means in Practice
- The Limits and the Counter-argument
- What It Means for Pakistan
- Conclusion
BRICS De-dollarisation Model Answer — Introduction
BRICS began as a grouping of large emerging economies — Brazil, Russia, India, China and South Africa — and has since expanded to include additional members from the Global South. It is not a military alliance and it is not a single market, but it has become a forum where developing countries discuss reform of global economic governance, development finance and the use of national currencies in trade. De-dollarisation, in this debate, does not mean abolishing the dollar.
It means reducing dependence on it: settling more trade in national currencies, building payment systems that bypass dollar clearing, and holding a more diversified mix of reserves. This answer argues that de-dollarisation is a real but gradual process, driven by sanctions, by the cost of dollar dependence, and by the rise of the Global South — and that its pace will be set by economics, not by summit declarations.
Why the Dollar Dominates
The dollar’s dominance rests on more than habit. Most world trade, especially in oil and other commodities, is priced in dollars. Central banks hold dollars as reserves because dollar assets are deep, liquid and widely accepted.
International payments largely clear through dollar-based systems, and borrowing in dollars is often cheaper than borrowing in smaller currencies. That dominance gives the United States a structural advantage: it can borrow cheaply, and its financial sanctions bite because exclusion from dollar clearing is costly. For developing countries, however, the same dominance creates vulnerability.
When United States interest rates rise, dollar debt becomes more expensive. When the dollar strengthens, import bills rise. And when sanctions cut a country off from dollar payments, its trade can be disrupted even with countries that have no quarrel with it.
Why BRICS Members Discuss Alternatives
Three motives drive the discussion. First, insurance against sanctions. Russia’s exclusion from parts of the dollar system after its war in Ukraine showed other states that dollar dependence can become a political risk, and several BRICS members have since explored trade settlement in their own currencies.
Second, cost and control. Settling bilateral trade in national currencies avoids conversion costs and reduces exposure to dollar swings, which matters for countries that trade heavily with each other. Third, voice.
BRICS members argue that institutions built after the Second World War — above all the International Monetary Fund and the World Bank — still reflect the economic weight of an earlier era, and that a grouping of large developing economies should have a louder say in how global finance is run. The New Development Bank, set up by BRICS, is the institutional expression of that argument: development lending by the South, for the South, without the policy conditions that have historically accompanied Western lending.
What De-dollarisation Actually Means in Practice
In practice, de-dollarisation is a set of partial steps, not a single switch. One step is local-currency trade settlement, where two countries agree to invoice and pay in their own currencies rather than dollars. A second is the development of alternative payment messaging and clearing arrangements, so that a payment does not have to pass through dollar channels.
A third is the diversification of central-bank reserves, with gold and other currencies taking a larger share alongside the dollar. A fourth, still largely aspirational, is the idea of a common BRICS currency or unit of account. Each step faces the same test: will exporters accept the currency, can it be converted freely, and does it hold its value?
A currency used only for one bilateral trade, and not freely convertible, is a barter arrangement, not a reserve currency. That is why, for all the discussion, the dollar remains the dominant currency for trade, reserves and debt.
The Limits and the Counter-argument
A strong CSS answer must state the limits plainly. The BRICS economies are diverse and sometimes rivals: India and China have a contested border and compete for influence in Asia, and their trade and security interests do not always align. Their currencies are not equally convertible, and none has the depth, liquidity and legal certainty of dollar markets.
A common BRICS currency would require a shared central bank, shared fiscal rules and a willingness to surrender monetary sovereignty that no member has shown. Moreover, de-dollarisation can carry costs: a country that settles in a weaker currency may find its exporters prefer dollars, and a move perceived as hostile to the dollar system can invite retaliation, including tariffs or restrictions. The honest conclusion is therefore modest: the dollar system is fragmenting at the edges, with more trade settled outside it than a decade ago, but no rival system yet exists that can replace it at scale.
What It Means for Pakistan
Pakistan is not a BRICS member, but the debate matters to it in three ways. First, trade and finance. Pakistan trades heavily with China, its largest bilateral partner in several sectors, and any expansion of local-currency settlement with China or with Gulf partners affects its import bill, its reserves and its debt profile.
Second, development finance. The New Development Bank and other South-led lenders offer an additional source of project finance, but they do not replace the IMF or traditional creditors, and Pakistan’s access to any lender still depends on its own macroeconomic credibility. Third, diplomacy.
Pakistan must balance its relationships: deepening economic ties with BRICS economies and the Gulf, while maintaining access to Western markets, IMF programmes and dollar financing. A policy that presents diversification as confrontation would cost Pakistan more than it gains; a policy that presents it as prudent risk management — settling some trade in partner currencies, diversifying reserves where feasible, and keeping all financing channels open — matches Pakistan’s actual position as a country that needs every partner it can keep.
Conclusion
BRICS and de-dollarisation describe a shift in the geography of economic power, not the end of the dollar. The dollar’s dominance is real, but so are the motives to reduce dependence on it: sanctions risk, the cost of dollar debt, and the demand of the Global South for a larger voice. The process will be gradual, uneven and driven by whether alternative arrangements actually work for traders and central banks. For Pakistan, the sensible course is diversification without rupture: use new channels where they lower costs, keep old channels open where they provide stability, and judge every proposal by one test — does it make Pakistan’s economy more resilient, or merely more rhetorical?
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