Why is Donald Trump threatening Brics members against dedollarization? – First message

Trump demanded that BRICS member countries commit not to create a new currency or support another currency to replace the US dollar.

He said they would face 100 percent tariffs if they did not do so.

“We demand that these countries commit not to create a new Brics currency, nor support another currency to replace the powerful US dollar, otherwise they will face 100% tariffs and should expect to say goodbye to selling in the wonderful USA. Economy,” Trump wrote on his social media platform Truth Social.

“They can go find another ‘asshole.’ There is no chance of Brics replacing the US dollar in international trade, and any country trying to say goodbye to America. »

But why does the world want to reduce its dependence on the dollar? And how does the United States benefit?

Let’s take a closer look:

The almighty dollar

Let’s first take a quick look at the dollar.

The dollar has been the world’s reserve currency for decades and is known as the “king of money.”

It achieved its high status thanks to the famous Bretton Woods agreement concluded by 44 countries in 1944.

This was even stronger when Nixon, in 1971, decoupled the dollar from the price of gold.

Today, dollars account for 90 percent of global monetary reserves and trade.

According to Brookings.edu, Governments around the world and central banks maintain healthy reserves of US dollars in order to control the exchange value of their currencies or in case of economic shocks.

They also borrow in dollars, which protects their creditors from currency risk. Today, 64 percent of global debt is held in dollars.

As Brookings’ Eswar Prasad noted, “Economic and geopolitical turmoil only intensify the quest for safe investments, generally driving investors back to the dollar, which remains the most reliable currency.” »

But how does this benefit America, you may ask?

Because the “exorbitant privilege” – as French Finance Minister Valéry Giscard d’Estaing called it in 1965 – allows the United States to pay its trade and budget deficits.

The United States essentially opposed a balance of payments crisis.

In effect, it imports and borrows in its own currency.

It can also use quantitative easing – what in simple terms is called printing money – to cause the value of the dollar to fluctuate.

However, the main power that the United States derives from these comfortable arrangements is that they allow it to impose sanctions against countries.

It does this through various laws, including the International Emergency Economic Powers Act, the Trading With the Enemy Act, and the Patriot Act, which allow Washington to weaponize payment flows.

Why the world wants to reduce its dependence on the dollar

Because countries believe that the United States is “abusing” its power.

As Russian President Vladimir Putin said at the Brics summit in October: “The dollar is being used as a weapon. We really see that this is so. I think this is a big mistake on the part of those who do this.

Washington withdrew Iran and Russia from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) in 2012 and 2022, respectively due to the nuclear program and the war in Ukraine.

SWIFT is a secure messaging system designed to ensure fast cross-border payments, which has become the primary mechanism for financing international trade.

The combination of sanctions and SWIFT control gives the United States unprecedented control over the global economic system, according to Bloomberg.

Russia has established its own network, the Financial Message Transfer System (SPFS), as an alternative to SWIFT.

It sent around 2 million messages in 2020, or around a fifth of Russian internal traffic, says the central bank, which aims to increase this share to 30% in 2023.

But the SPFS, which limits the size of messages and operates only on weekdays, has difficulty adding foreign members.

In recent years, countries have sought to counter U.S. dominance by trying to find an alternative to the dollar – a process known as dedollarization.

The leaders of the original five Brics countries – Brazil, Russia, India, China and South Africa – have been trying to float the idea of ​​a common Brics currency for years.

China, the world’s second-largest economy, has also tried to replace the dollar with the renminbi, its own currency.

However, these ideas have had little success so far.

“The Chinese government has advanced its policies on several fronts to promote the internationalization of the renminbi, including the development of a cross-border payment system, the expansion of swap lines and the piloting of a central bank digital currency. It is therefore interesting to note that the internationalization of the renminbi, at least as measured by the reserve share of the currency, shows signs of stagnation,” the IMF said, according to Times of India.

There are also internal differences.

“China is very keen to assume a dominant role to use the (BRICS) bloc against the US, although India, Brazil and South Africa are more keen to work with the US and to resolve their differences amicably through negotiations,” the Federation of Indian Export Organizations said. (FIEO), managing director and CEO Ajay Sahai told the newspaper.

What do the experts say?

That the United States only has itself to blame for countries looking for an alternative to their dollar.

As stated by Ajay Srivastava, former trade executive and head of the think tank Global Trade Research Initiative. Indian Express, “It is the actions of the United States that have caused many countries to seek alternatives to the US dollar. The United States has a history of exploiting its influence over global financial systems, such as the SWIFT network, to impose unilateral sanctions. SWIFT is essential for secure and standardized international financial transactions. By blocking countries like Russia and Iran from accessing SWIFT, the United States has effectively weaponized the global financial infrastructure, forcing other countries to find alternative payment mechanisms to continue legitimate commerce.

They also say the United States should exercise caution.

Brookings.Edu quoted US Treasury Secretary Janet Yellen as warning that the dollar could ultimately be pushed aside as the world’s dominant currency “if the United States is capricious on sanctions, acts unilaterally and fails to develop a economic policy doctrine.

In short, the dominance of the US dollar is currently not under threat.

But in the long term, things could change.