De-dollarization Effort in Spotlight After Trump’s Tariff Threat on BRICS

Russia's President Vladimir Putin gives a speech during the extended format meeting of the BRICS summit in Kazan on Oct. 23, 2024. Alexander Nemenov/POOL/AFP via Getty Images

President-elect Donald Trump has threatened to slap a 100 percent tariff on the economies of BRICS nations if they try to abandon the U.S. dollar as the chief international reserve currency, prompting speculation among economic observers.

“The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is over,” Trump wrote in a Nov. 30 Truth Social post.

BRICS—a nine-nation alliance of Brazil, China, Egypt, Ethiopia, India, Iran, Russia, South Africa, and the United Arab Emirates—has been at the forefront of the de-dollarization initiative in recent years.

The global campaign to shift away from the greenback generated significant momentum following Moscow’s invasion of Ukraine.

Officials from these countries have been employing measures to reduce their reliance on the buck.

In addition to engaging in bilateral trade settled in local currencies, there has been years-long speculation that the bloc would establish a new reserve currency to rival the dollar.

If the BRICS nations followed through on using a basket of currencies—tossing the ruble, yuan, rupee, and real into a big bowl and creating one uniform currency—it would not affect the dollar, economist Peter St Onge said.

Internal BRICS trade accounts for a little more than 1 percent of global trade, and the group’s share of worldwide reserves is approximately 5 percent.

By comparison, according to data from the International Monetary Fund (IMF), the U.S. dollar still represents approximately 60 percent of foreign exchange reserves. The next closest is the euro, accounting for fewer than one-fifth of global reserves.

Additionally, the Banker for International Settlements’ 2022 Triennial Central Bank Survey showed that the U.S. dollar accounted for 88 percent of global transactions, a figure that has stayed about the same for the past two decades.

“A basket of basket cases does not stand a snowball chance of replacing the dollar, at least outside trade between BRICS countries, say, between China and Russia,” Onge said in a video posted to X in October.

“With those numbers, a basket of BRICS will barely make a dent in the dollar.”

Still, Trump has been vocal about employing the tariff weapon to halt the formation of a rival to the U.S. dollar.

“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 percent tariffs, and should expect to say goodbye to selling into the wonderful U.S. economy,” the president-elect recently wrote.

“They can go find another ’sucker!'”

While he does not believe BRICS will successfully replace the U.S. dollar in worldwide trade, Trump stated that any country that attempts to “should wave goodbye to America.”

This is not the first time Trump has weighed in on imposing tariffs on anti-dollar nations.

In October, speaking at the Economic Club of Chicago with Bloomberg, Trump warned that the United States could slip into “Third World status” if it loses reserve dominance.

“We have to have that. We cannot lose it,” Trump said. “You’ll go to Third World status in this country because you take a look at the way things are running.”

He also pledged to implement a 100 percent levy on any country considering moving away from the dollar.

“If a country tells me, ‘Sir, we like you very much, but we’re going to no longer adhere to being in the reserve currency. We’re not going to salute the dollar anymore,’ I’ll say, ‘That’s OK, and you’re going to pay a 100 percent tariff on everything you sell into the United States, and we love your product. I hope you sell a lot of it into the United States, but you’re going to pay 100 percent tariff,’” Trump said.

“He will then follow it up by saying, ‘Sir, it would be an honor to stay with the reserve currency.’”

At a September campaign rally, Trump told the crowd that many countries are exiting the dollar.

“They’re not going to leave the dollar with me,” he said.

Officials attend a plenary session in the outreach/BRICS Plus format at the BRICS summit in Kazan, Russia, on Oct. 24, 2024. Maxim Shemetov/AFP via Getty Images

While there have been signals that the group would start a reserve currency, officials have appeared to veer away from this goal, said Michael Wan, a senior currency analyst at MUFG Research.

“While BRICS has at times talked about creating a new unified BRICS currency, the latest summit in Kazan in October did not put an emphasis on creating a new currency,” Wan stated in a Dec. 2 note.

“It’s unclear how 100 percent tariffs on a group of countries that make up 37 percent of global GDP would happen in practice, but serves as a possible preview of tariff diplomacy under Trump 2.0.”

Other countries have expressed interest in becoming official BRICS members.

Views on the Anti-Dollar Crusade

Despite the BRICS expansion and the formation of BRICS-Plus—an extension of the formal partnership of other emerging economies—the U.S. dollar hegemony has remained intact.

Its dominance in the world economy has strengthened amid the Federal Reserve’s 2 1/2-year tighter monetary policy, robust growth prospects, and geopolitical tensions.

The U.S. Treasury market has also attracted immense foreign investment, with global holdings hitting a record high of nearly $8.7 trillion in September.

The U.S. dollar index, a gauge of the buck against a weighted basket of currencies, has surged 5 percent this year, even as the Federal Reserve started its new easing cycle in September.

Other currencies belonging to BRICS members have weakened considerably against the dollar.

The Indian rupee plunged to an all-time low against the dollar on Dec. 2 after new data revealed a sharp economic slowdown in the world’s fifth-largest economy.

India’s GDP growth rate eased to a lower-than-expected 5.4 percent in the third quarter, down from 6.7 percent in the second quarter.

The Russian ruble continues to sink, trading at less than a penny to the U.S. dollar. The ruble’s descent has been fueled by falling crude oil prices and the lasting effects of U.S.-led Western sanctions.

The Chinese yuan has slumped more than 2 percent against the buck this year. A Reuters poll of market watchers suggests China’s economy will grow by 4.8 percent in 2024, falling short of the government’s target.

Beijing’s economic growth rate could cool to 4.5 percent in 2025.

Still, BRICS members appear optimistic that their long-term de-dollarization strategy will work.

At last month’s annual BRICS summit in the Russian city of Kazan, the group continued to lay the anti-dollar groundwork.

Leaders and representatives reiterated their pledge to bolster economic ties and increase the representation of their national currencies in trade and financial transactions.

The organization’s newest development is the proposal for a BRICS-based grain exchange with the institution’s New Development Work, which could play a hefty role in the worldwide agricultural market.

“A number of BRICS countries are among the world’s largest producers of grain, vegetables, and oilseeds. We propose opening a BRICS grain exchange,” Russian President Vladimir Putin said at the yearly retreat.

“This would facilitate predictable price indicators for products and raw materials, taking into account their special role in ensuring food security.”

Brazil controls 60 percent of all soybean exports, Russia is the world’s largest wheat exporter, and India maintains 40 percent of the international rice trade, including 65 percent of basmati rice shipments.

At the same time, there are mixed views about the BRICS nations dethroning the king dollar.

According to Dmitry Dolgin, chief economist at ING, BRICS enjoys substantial influence in global exchange reserves and the fuel trade.

However, because gold is the main rival to the dollar, the precious metal is underrepresented in the members’ central banks.

Ultimately, Dolgin says, the U.S. dollar is not facing “immediate danger” in areas such as capital markets and international banking.

“The role of BRICS is still low, helping the dollar retain its strong footing,” he stated in a note.

Economists at Capital Economics said BRICS faces “significant practical challenges” in launching a currency.

“It wouldn’t in any case solve any of the challenges they would face in trying to move away from the dollar,” they wrote in a note. “Whether or not the BRICS make an explicit pledge, a BRICS currency is not a viable challenger to the dollar.”

A noticeable trend among the group is the rise of the Chinese yuan’s share for international payments. SWIFT data show that the Chinese yuan’s share has increased to around 3 percent, up from about 1 percent before the pandemic.

While knocking the dollar off the global currency mountain “is out of the question for the foreseeable future,” Bastian von Beschwitz, the Federal Reserve’s research chief of global financial markets, says the yuan’s growth is a trend to monitor in the coming years.

The Fed researcher cited growing usage, government support efforts, and consequences emanating from Western sanctions on Russia as potential reasons for the yuan’s expansion.

“Over the last 10 years, the international role of the renminbi has increased notably from a very low starting point. Despite this increase, its international usage still lags behind even those of the British pound and Japanese yen,” von Beschwitz stated in an August paper.

“Going forward, it will be interesting to see if the renminbi usage in trade continues to increase and whether that increased usage ultimately leads to a larger fraction of FX reserves being held in renminbi.”

The renminbi is the official name of China’s currency, while the yuan is the currency’s basic unit of measure.

Trump has been wielding the tariff weapon in the weeks before he returns to the White House. He recently threatened to impose a 25 percent tariff on Canada and Mexico. The president-elect also said he would hit China with a 10 percent levy in addition to the current crop of tariffs. The aim, Trump says, is to push these countries to improve border security and halt the drug trade.

Russia shot back after Trump’s latest threats, warning the measure would backfire on the United States.

Kremlin spokesman Dmitry Peskov told reporters that the dollar’s appeal is diminishing and that more countries are diversifying their foreign economic and trade activities.

“If the United States uses force, as they say, economic force, to compel countries to use the dollar it will further strengthen the trend of switching to national currencies,” Peskov said.

“The dollar is beginning to lose its appeal as a reserve currency for a number of countries.”