“If you abandon the dollar, you’re not doing business with the United States because we will impose a 100 percent tariff on your goods,” Trump declared during a rally in Wisconsin, reflecting his firm stance on protectionism.
This statement follows extensive discussions between Trump and his economic advisers, who have considered a range of actions to penalise nations trading in currencies other than the dollar. These include export controls, accusations of currency manipulation, and tariffs, as reported by Bloomberg News.
Maintaining the dollar’s dominance is a central issue for Trump. A recent summit, where China, India, Brazil, Russia, and South Africa explored de-dollarisation, has added urgency to his campaign’s economic message. Although the dollar’s dominance is slowly declining, it still accounted for 59% of official foreign exchange reserves in early 2024, according to the International Monetary Fund. The euro was the next closest currency, holding nearly 20%, as reported by TOI.
US Election 2024: JPMorgan’s Report on Global Currency Dynamics
A recent report from JPMorgan examines the shifting dynamics of global currencies, focusing on the US dollar’s dominance in international markets. While its share of emerging market FX reserves has declined, increases in dollar-denominated bank deposits, sovereign wealth fund activity, and non-reserve foreign assets have offset this decrease. The report noted that the dollar’s share in global liabilities remains on the rise, driven by record debt issuance.
Although geopolitical trends—such as increased non-USD commodity trading and alternative payment systems—indicate some changes, JPMorgan predicts that any significant erosion of the dollar’s global dominance will take decades. The report highlighted that declining FX reserve holdings should not be misinterpreted as a move towards de-dollarisation.
US Election 2024: Shifts in Commodities and International Payments
JPMorgan also identified notable changes in commodity markets, where non-USD currencies are being used more frequently for oil trading. Rising demand for gold among central banks and consumers in emerging markets reflects growing diversification efforts. However, the report cautioned about the risks of potential fragmentation in the global payment system, where the dollar has historically played a central role.
Geopolitical developments, including China’s and Russia’s attempts to bypass US-controlled systems like SWIFT, present further challenges to the dollar’s hegemony. The rise of central bank digital currencies (CBDCs), according to JPMorgan, could also enable countries to sidestep the US financial system in future transactions.
Dollar Disintermediation and the BRICS Bloc
Dollar disintermediation refers to global efforts, particularly within the BRICS (Brazil, Russia, India, China, South Africa) bloc, to diminish the US dollar’s dominance in global trade and finance. The USD has traditionally served as the world’s primary currency for foreign exchange markets, commodity pricing, and global debt issuance. Despite the US economy comprising only 25% of global GDP, the dollar’s outsized role highlights its “exorbitant privilege.”
Shift in Global Reserve Currency Preferences
A recent Observer Research Foundation report highlights the growing desire among BRICS leaders, including Brazil’s President Lula da Silva and Russia’s President Vladimir Putin, to move away from the dollar. In the 1970s, the USD accounted for 85% of global foreign exchange reserves, but this has dropped to 58% by 2022. Countries are increasingly turning to alternative currencies such as the Australian and Canadian dollars, the Swiss franc, and the Chinese renminbi (CNY), while also increasing their gold reserves. However, while the renminbi is gaining ground, it remains far from challenging the dollar’s dominance.
China’s renminbi faces structural challenges in becoming a global reserve currency, including the need for full convertibility and greater market transparency. Additionally, nations within BRICS are reluctant to give up monetary sovereignty, posing obstacles to the idea of a unified BRICS currency.
Although a shift away from the dollar as the global reserve currency is unlikely in the near future, BRICS members are developing alternative financial infrastructures to reduce dollar reliance in international trade. Initiatives like China’s UnionPay, India’s UPI, and Russia’s SPFS exemplify this trend. Furthermore, China’s CIPS and its collaboration with Russia’s SPFS are efforts to create alternatives to SWIFT, driven by geopolitical factors and sanctions, particularly in Russia’s case following the war in Ukraine.
Historically, commodities like oil and natural gas have been traded in US dollars, with the majority of transactions taking place on Western exchanges. However, the BRICS expansion, which now includes Saudi Arabia, the United Arab Emirates, Iran, Egypt, Argentina, and Ethiopia, is expected to shift global oil market dynamics. BRICS+ now controls 43% of global oil production.
Oil Trade in Local Currencies
For China and India, two major oil importers, the expanded BRICS bloc offers an opportunity to negotiate oil imports in their own currencies, reducing dependence on the dollar-based system. China has already taken steps in this direction, establishing currency swap agreements with key oil producers like Russia and Saudi Arabia to settle oil transactions in renminbi (CNY). In December 2022, during a state visit to Saudi Arabia, Chinese President Xi Jinping proposed using the Shanghai Petroleum and Natural Gas Exchange for CNY-denominated oil and gas trades, further diminishing reliance on the USD in energy markets. A notable milestone in this effort was the successful renminbi-based oil trade between China’s CNOOC and France’s Total Energies.
The Role of Central Bank Digital Currencies (CBDC)
Following the 2023 BRICS Summit, China and Saudi Arabia renewed their currency swap agreement and signed a memorandum of understanding to explore developing a Central Bank Digital Currency (CBDC). This step signals a potential move towards a multi-currency cross-border clearing system, which could further reduce the US dollar’s dominance in commodity pricing and trading. Through the use of digital currencies and alternative payment infrastructures, BRICS members are advancing towards more diversified currency usage in global commodity markets.
Trump’s statement comes at a pivotal moment in the presidential race. Wisconsin is a key battleground state where both Trump and Democratic rival Kamala Harris are vying for the support of working-class voters dissatisfied with President Joe Biden’s economic policies. According to a Bloomberg News/Morning Consult poll, Harris currently leads Trump by 8 percentage points in Wisconsin, the largest margin among the seven battleground states surveyed.
Trump’s Wisconsin rally marked the end of a campaign tour that included stops in Pennsylvania and North Carolina. Earlier in the week, he delivered a major economic address in New York City. Meanwhile, Kamala Harris spent Saturday in Pennsylvania, preparing for her upcoming debate with Trump, which could prove crucial in shaping the outcome of the race.
As Trump’s campaign focuses on economic nationalism and defending the dollar, the global consequences for countries like India, which has been involved in de-dollarisation discussions, will be significant. The evolving relationships between the US and its international trade partners will remain a key issue in the lead-up to the election.
Trump’s stance aims to ensure that countries think twice before moving away from the dollar in their international transactions. These developments highlight the growing tensions between the US and other global economic powers, adding further significance to the upcoming election.
