In March 2024, Donald Trump, former US President and Republican Presidential candidate for the 2024 election, while commenting on the growing trend of de-dollarization said: “I would not allow countries to go off the dollar because when we lose that standard, that will be like losing a revolutionary war.” While criticising US President Joe Biden, Trump had also said: “With Biden, you’re going to lose the dollar as the standard. That’ll be like losing the biggest war we’ve ever lost."
According to a report, Trump’s advisors are figuring out ways to penalize countries – allies, partners and adversaries going in for de-dollarization. Some of the ways which have been thought of are – tariffs and export controls. As of 2022, the US Dollar accounted for 58% of foreign reserve holdings globally.
Reasons why more and more countries are going in for de-dollarisation
Several countries have begun to reduce their dependence upon the Dollar for global trade. One of the key push factors for the same has been the imposition of US sanctions on Russia in the aftermath of the Russia-Ukraine war. It is estimated that over 17,000 personal and sectoral sanctions have been imposed by western nations. Several countries have gone in for trade in local currencies to circumvent these stringent sanctions.
Trade in local currencies has especially gone up in the trade of commodities. In 2023, one/fifth of oil trade was carried out in non-dollar currencies. In December 2023, Russia and Iran have signed an agreement to do all their trade in local currencies. Iran has been facing sanctions ever since the US pulled out of the Iran nuclear deal in 2018. In the aftermath of the Russia-Ukraine war, more sanctions have been imposed by Washington on Tehran.
Over 90% of trade between Russia and China is also conducted in their national currencies. This point was reiterated by Russian Foreign Minister, Sergei Lavrov. China and Russia also signed an agreement via which local currencies would be used for trade up to $260 billion between both countries.
BRICS+ grouping and a common currency
The China-dominated BRICS+ grouping which also consists of India has been pushing for de-dollarization. Several countries have also been pushing for a common currency for the grouping. Apart from Russia and China, Iran which entered BRICS has also been pushing for a BRICS+ currency. Several of the other new members of BRICS+ have also been supporting trade in non-dollar currencies. In November 2023, Saudi Arabia had signed a currency swap agreement with China. The agreement was signed between the People’s Bank of China and the Saudi Central Bank.
It would be pertinent to point out, that in the aftermath of the expansion of the BRICS grouping, the US itself has realized the point that de-dollarisation will gain momentum and the US dollar’s influence will be impacted. Unlike the Trump administration, the Biden administration, while being critical of this trend, has not indicated that it will take any drastic measures against countries for trading in non-dollar currencies.
India has been cautious regarding the BRICS+ currency, but it has begun local trade with countries like the UAE. In December 2023, India made its first payment in Rupees for the purchase of oil from the UAE. Both countries had signed an MOU in July 2023 to promote the use of local currencies. India has also begun rupee trade with neighbouring countries like Nepal and Bhutan.
The world is facing several geopolitical challenges which are likely to impact the global economy. If Trump were to win the 2024 election, he would need to address these issues and can not afford to adopt a simplistic approach and take steps which are disruptive. Washington needs to understand why de-dollarization has gained steam. If the US is not willing to give some relaxation to countries regarding trade with countries which are facing sanctions, de-dollarization is likely to strengthen at least in commodity trade. Apart from this, the imposition of further tariffs on several countries, as has been committed by Trump, will also lead to de-dollarization. A lot will also depend upon Washington’s ties with Beijing and Moscow.
At the same time, writing off the US dollar is premature. Several countries who are carrying out trade in non-dollar currencies themselves realize that while the use of the dollar may have reduced, the US dollar is here to stay.
Disclaimer: The views expressed in this article are only of the author.
