New Delhi: US President-elect Donald J. Trump Saturday slammed the BRICS grouping of countries for attempting to trade in local currencies, promising to impose 100 percent tariffs if its member nations continue to “move away from the dollar”.
BRICS—a grouping of nine countries, including Brazil, Russia, India, China, South Africa, Egypt, Iran, Ethiopia and the United Arab Emirates—has publicly been pushing for greater trade in local currencies, especially since the start of the Russia-Ukraine war in 2022.
The policy of de-dollarisation has become one of the foreign policy goals of Russian President Vladimir V. Putin, given that Moscow has been cut off from international payment mechanisms, such as the SWIFT network, since its invasion of Ukraine.
About 58 percent of all global foreign exchange reserves is in US dollars, signalling the enduring strength of the currency as a reserve currency for international trade. Of the total $12.3 trillion of global foreign exchange reserves as noted by the International Monetary Fund, around $6.675 trillion are stored in US dollars, as of the second quarter of 2024.
India has, however, maintained that it has no stated policy goal of achieving de-dollarisation or “actively” targeting the dollar. New Delhi has concerns due to the fact that some countries are unable to trade in the US dollar, following the use of sanctions by Washington D.C. on their economic systems.
“While the long-term, multi-faceted partnership between India and the US is to deepen, Trump’s hawkish statements on de-dollarisation raise challenges on India’s strategic autonomy and support for settling trade in local currencies,” said foreign policy analyst Swasti Rao to ThePrint. “While BRICS currency was never on the table from India’s side, settling international payments in local currencies has been an objective because of the prevalent sanction regime. Several countries find themselves at the receiving end of payment blockages and would like to steer clear of such uncertainties.”
At an event in the US last month, External Affairs Minister S. Jaishankar had said, “So there’s no, I can say, malicious intent vis-a-vis the dollar in doing this. We’re trying to do our business. Sometimes, you make it difficult in the use of dollars. So, we have some trade partners with whom trade in dollars becomes difficult because of your policies. So, we have to obviously look for workarounds.”
The minister had added: “But for us, again, look, as we spoke about rebalancing, we spoke about multipolarity, obviously all of this is also going to reflect on currencies and economic dealings. So, it is… the era of American dominance is also an era of dollar dominance, an era of certain hedging and a certain spread.”
Trump, who is set to take over as the US president in January 2025, wrote in a post on X Saturday: “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER. We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
He added: “They can go find another ‘sucker!’ There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”
Economist Sharad Kohli called Trump’s threat a “declaration of an economic war on the developing countries by America.” He told ANI, “This is completely unfair because this is checking the economic independence of the countries…”
He further said, “We have seen countries collapsing around the world because of the foreign exchange dependence on the US dollars.”
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The de-dollarisation push
The latest BRICS declaration at the Kazan summit in October has no mention of de-dollarisation, but looks at strengthening mechanisms of financing in local currencies. The Kazan declaration specifically tasks the New Development Bank (NDB), one of the institutions of the BRICS, to focus on “expanding local currency financing”.
“We reiterate our commitment to enhancing financial cooperation within BRICS.We recognise the widespread benefits of faster, low cost, more efficient, transparent, safe and inclusive cross-border payment instruments built upon the principle of minimising trade barriers and non-discriminatory access. We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners,” read the Kazan declaration.
Around $2.265 trillion worth of Euros (EUR) are also held as foreign reserves by countries globally in Q2 of 2024, according to the IMF. The UK’s pound sterling, Japanese Yen, Australian dollar and the Canadian dollar are the next most major currencies held in reserve by nations. The Chinese renminbi yuan is the seventh most held currency in foreign reserves, accounting for only 2.14 percent of the global currency reserves.
The low volume of the Chinese renminbi yuan held by nations across the world indicates the difficulty for the BRICS countries to push the idea of de-dollarisation. However, the share of Central Bank assets around the world in US dollars has dropped by around 13 percentage points since 1999, from 71 percent to 58 percent.
(Edited by Mannat Chugh)
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