Context: The U.S. dollar’s dominance in global trade is being challenged by BRICS nations, which aim to reduce reliance on it. In response, Donald Trump has threatened 100% tariffs if these countries promote alternatives or develop a BRICS currency.

Trump’s Tariff Threat Against BRICS

• S. President-elect Donald Trump has threatened 100% tariffs on nine BRICS alliance nations if they undermine the U.S. dollar.

• The BRICS alliance includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the UAE.

• Trump demands these countries avoid creating a new BRICS currency or supporting alternatives to the U.S. dollar.

What is De-dollarisation?

• The US dollar, which accounts for around 58% of global foreign exchange reserves, is a cornerstone of international trade and finance.

• It is involved in nearly 90% of global forex transactions and remains the primary currency for commodities like oil. However, its share of global reserves has dropped to a 20-year low of 58%.

• De-dollarisation refers to countries reducing their dependence on the US dollar for trade, reserves, and financial transactions.

• Countries are shifting to using their own currencies or regional currencies in trade, rather than relying on the US dollar. They might also explore cryptocurrencies or other systems.

Key aspects of de-dollarisation include:

• Reduced use of the US dollar in trade: Countries are forming bilateral trade agreements to settle transactions in their own currencies.

• Diversifying reserves: Instead of holding most reserves in US dollars, countries are investing in other currencies like the euro, yuan, or even gold.

• Alternative payment systems: Countries are developing or joining payment systems that don’t depend on US dollar-dominated networks like SWIFT. For example, China's CIPS is an alternative to SWIFT.

• Economic sovereignty: De-dollarisation helps countries protect themselves from US economic sanctions and the instability of dollar fluctuations.

Role of BRICS in De-dollarisation

• The BRICS group (Brazil, Russia, India, China, and South Africa) has been leading efforts to move away from the dollar. They have discussed creating a shared currency to facilitate trade within their group, which could reduce their exposure to US financial systems.

• At a recent BRICS summit, a symbolic banknote was introduced, but there are no immediate plans for a unified BRICS currency or for replacing SWIFT with a BRICS alternative.

BRICS currency

• The idea of a shared BRICS currency gained traction during the 2023 Johannesburg summit, where Brazilian President proposed a common currency to shield member states from dollar fluctuations. Advocates argue that such a currency could enhance financial stability and reduce vulnerability to external shocks.

The Dollar’s Global Dominance

• The U.S. dollar remains the dominant global currency, comprising 58% of global foreign exchange reserves (IMF data).

• Most global commodities, like oil, are primarily traded in dollars.

• However, BRICS nations aim to trade in non-dollar currencies, challenging the dollar’s dominance.

Russia’s Push for Alternatives

• Russian President Vladimir Putin criticized the U.S. for “weaponising” the dollar at a BRICS summit.

• Russia advocates for an alternative payment system to bypass SWIFT and counter Western sanctions.

Future of the Dollar

• Despite challenges, research suggests the U.S. dollar’s role as the global reserve currency is secure in the near future.