In a X-post on December 1
, US President-elect Donald Trump issued a stark warning that he would impose 100% tariffs on the BRICS nations—Brazil, Russia, India, China, and South Africa—should they attempt to establish a currency rivaling the U.S. dollar. Trump’s threat to use tariffs as a blunt instrument against economic shifts highlights his longstanding preference for trade protectionism as a tool for economic growth. Throughout his presidency, Trump advocated tariffs as a mechanism to bolster domestic industries, create jobs, and increase government revenue. However, the consequences of such measures, including increased costs for U.S. consumers, have raised questions about their long-term effectiveness. As BRICS nations seek alternatives to the U.S. dollar, the dynamics surrounding dollar dominance are evolving—an issue that warrants a more sophisticated approach than simply retaliatory tariffs.
In a panel discussion convened by COGGS, Ambassador Anil Trigunayat, advisor at COGGS, delivered a penetrating analysis of the currency dynamics redefining the global financial system, highlighting how ongoing international conflicts, notably the war in Ukraine, are driving shifts in global trade patterns and currency preferences, with particular implications for the Global South.
I. The Ripple Effects of Global Conflicts
The COGGS discussion begins with the broader context of international conflict, notably the war in Ukraine. This conflict has catalyzed a series of disruptive economic measures, including the expulsion of Russia from the SWIFT international payment system and the seizure of Russian assets by Western powers. Such actions underscore how global conflicts are increasingly shaping economy, particularly for nations that find themselves sidelined by Western economic sanctions. As countries like Russia, China, and others in the Global South are excluded from established financial networks, they are turning to alternative means of trade and finance.
One of the key consequences of these disruptions is the weaponization of commodities like energy, food, and fertilizer. This development has disrupted global supply chains and intensified inflationary pressures worldwide. In response, nations are rethinking their reliance on the U.S. dollar, exploring alternatives such as bilateral trade agreements in local currencies. These changes, while incremental, signal a growing willingness to explore alternative financial systems that could reduce vulnerability to external pressures.
II. De-dollarization and the Rise of National Currencies
Central to COGGS’s discussion is the trend of de-dollarization—an ongoing shift away from the U.S. dollar as the dominant medium of global trade. Countries like India, Russia, and China have increasingly turned to their own national currencies in bilateral transactions, reducing reliance on the dollar. For example, India has signed trade agreements with over 20 countries, while Russia and China conduct the bulk of their $200 billion trade in their respective currencies, the ruble and the renminbi. These efforts are not an attempt to replace the dollar outright but to diversify the global financial system and reduce exposure to risks associated with U.S. monetary policy and sanctions.
This trend has accelerated in part due to a desire for greater economic autonomy, especially among nations in the Global South. By trading in their own currencies or using digital currencies, these countries are seeking to insulate themselves from the adverse effects of external economic policies. However, despite this growing momentum, the dollar remains entrenched as the primary global reserve currency, holding between 70-80% of global reserve assets. Any meaningful transition away from dollar dominance will be gradual and will require systemic adjustments on a global scale.
III. Challenges to the Dollar’s Dominance
Although the U.S. dollar remains dominant, the current financial architecture is showing signs of strain. The dollar’s position is not easily challenged, as it is deeply embedded in global trade, finance, and banking systems. The dollar’s dominance, however, is increasingly being questioned by countries that perceive it as a tool of U.S. geopolitical power. For many nations, the reliance on the dollar presents both economic and strategic risks—particularly in light of the volatility introduced by U.S. sanctions and the shifting global balance of power.
Nevertheless, the global shift away from the dollar will not happen overnight. These transitions are more about creating options rather than directly supplanting the dollar. While many Western media outlets frame these efforts as a direct challenge to U.S. hegemony, they are more a reflection of the changing priorities of the Global South, which is seeking greater flexibility and resilience in its trade and financial dealings.
IV. The Global South’s Position
For nations in the Global South, the motivation to reduce reliance on the U.S. dollar stems from a desire for greater economic sovereignty. Over-dependence on the dollar has made these countries vulnerable to the whims of U.S. monetary policy and economic sanctions, which can have disproportionate impacts on smaller economies. In this context, alternatives like national currencies or digital currencies offer a means of mitigating these vulnerabilities.
Global South is not necessarily seeking to isolate itself from the U.S. dollar. Rather, it is looking for a more diversified financial system that provides greater autonomy and reduces the risks associated with a single currency system. The U.S. should reconsider its reliance on punitive measures, such as tariffs, to preserve dollar dominance. Instead, the U.S. might benefit from engaging in a more collaborative dialogue with other nations about how to adapt to the evolving global economic landscape.
V. A New Currency Order?
The global economic system is in a period of flux, with shifting trade relationships and growing efforts to create alternative financial structures. In future, there will be an effective multipolar economic system – where multiple currencies and trade mechanisms will coexist. This shift, however, will be gradual and complex. The U.S. dollar, while no longer as unassailable as it once was, is unlikely to be completely displaced in the near future. Instead, the global financial system will likely evolve to incorporate a more diversified set of tools, where countries have greater freedom to choose their preferred methods of trade and finance.
The ongoing erosion of dollar dominance is a response not only to geopolitical conflicts but also to the inherent limitations of a financial system that disproportionately benefits certain nations. The transition towards a more diverse economic order will take time and negotiation. But it’s clear that the world is moving toward a system where the U.S. dollar is no longer the sole arbiter of global finance. Trump’s threat to impose punitive tariffs on BRICS nations is emblematic of the U.S.’s protectionist stance, but it may miss the larger point: the global financial system is undergoing a transformation. As countries seek alternatives to the U.S. dollar, the U.S. must adapt to a changing world order. This process will be neither quick nor straightforward, but the outcome will undoubtedly reshape the global economic order in the years to come.
