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Trump’s latest intervention does though risk undermining the greenback and increasing the likelihood of such pacts by encouraging countries to explore ways to avoid the US currency
Donald Trump’s fresh pressure on countries around the world to stay anchored to a US-dollar-based financial system is a tactic that risks backfiring, market watchers say.
The dollar looks likely to dominate the world economy for the foreseeable future and emerging nations’ idea of setting up their single currency is hot air, said Mark Sobel, a retired 40-year veteran of currency policy who worked at the US Treasury.
Trump’s latest intervention does though risk undermining the greenback and increasing the likelihood of such pacts by encouraging countries to explore ways to avoid the US currency.
It accounted for about 88% of all trades in the US$7.5 trillion-a-day foreign exchange market, based on the latest triennial survey from the Bank for International Settlements published in 2022.
The size and strength of the US economy are also unparalleled, Treasuries are still one of the safest ways to store money, and the greenback is still the ultimate beneficiary of haven flows.
BRICS members control more than 40% of central bank reserves globally and have discussed ways to reduce reliance on the greenback — including the idea of a single currency for use between them. But the moot point is: Can they do that against the over-dominating dollar?
The US President-elect has threatened a 100% tariff on the BRICS countries, including India, if they undercut the US dollar or replace it with another currency for international transactions. His remarks follow a BRICS meeting in October that discussed boosting non-dollar transactions. The BRICS grouping comprises Brazil, Russia, India, China, South Africa, and other countries.
The President-elect suggested that the BRICS countries can go find another “sucker”, but the group won’t be able to replace the dollar in international trade with another currency. “They can go find another “sucker!” There is no chance that the BRICS will replace the US Dollar in International Trade, and any Country that tries should wave goodbye to America,” said Trump.
The BRICS countries – which now include Egypt, Iran, and UAE as well – discussed boosting non-dollar transactions and strengthening local currencies at a summit held in Russia’s Kazan in October.
However, Russia’s President Vladimir Putin indicated at the summit’s end that no alternatives have been made so far to compete with the Belgium-based SWIFT financial messaging system.
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India, too, has said it’s against de-dollarisation. In October, Foreign Minister S Jaishankar said that’s neither a part of India’s economic policy nor the country’s political or strategic policies. But in cases where trade partners do not take dollars or when issues emerge due to trade policies, workarounds are looked at, he had said.