BRICS take on Trump and mighty dollar

• Dedollarization has more than economic ramifications.
• China, Russia are slowly dropping dollar in their trade payments.
• To counter the wave, US President Donald Trump has threatened 100% tariffs on all BRICS countries.

Dedollarization, the use of other currencies instead of the dollar for international trade, is gaining popularity among BRICS countries (and others), effectively undermining the dollar and threatening US global influence.

Dollarization: How the dollar came into power

Has the dollar always been the currency for global trade? The answer is a simple yet affirmative no.

It is the World Wars (and very forward thinking lobbyists) that propagated the dollar into its current dominant position above other currencies.

In 1944, the eve of the end of World War two, the Bretton Woods Agreement was signed paving the way for US dollar dominance in the post-war international monetary order.

“The agreement instituted a system of fixed exchange rates, where most currencies were pegged to the US dollar, which itself was convertible to gold at a fixed price,” explains the BRICS Journal of Economics.

The effect was ‘gold-heavy massive’ and almost a century later, continues to weigh heavy on all other currencies and economies least of which not being the BRICS.

“…it elevated the dollar to the status of world’s reserve currency, as nations held dollar reserves instead of gold,” the journal explains.

“The Bretton Woods framework cemented the dollar’s position as the primary currency for international trade and finance,” it details.

Even though the then US president Nixon, dissolved the Bretton Woods system in the 1970s but “it had a lasting influence on international currency exchange and trade through the development of the International Monetary Fund and the World Bank.”

According to the US Federal Reserve archives: “approximately 730 delegates representing 44 countries met in Bretton Woods, New Hampshire in July 1944 with the principal goals of creating an efficient foreign exchange system, preventing competitive devaluations of currencies, and promoting international economic growth.”

“The agreement also created two important organizations—the International Monetary Fund (IMF) and the World Bank.”

The archives attest that; “While the Bretton Woods system was dissolved in the 1970s, both the IMF and World Bank have remained strong pillars for the exchange of international currencies.”

“The effect of adopting the US dollar as the national currency (dollarization) transcends the realm of purely economic considerations…it carries profound social and cultural ramifications,”

The outcome of the dollar becoming the main currency of trade and store of value instead of gold was the enslavement of countries to dollar dependency.

In fact to date, many countries still hold dollar reserves instead of gold under the misconception that the dollar is more stable; Russia’s invasion of Ukraine and subsequent upheavals of the dollar value have proved otherwise and forced countries to rethink their store of value.

Consider, in Africa, a country like Tanzania, Africa’s third largest gold producer and eighteenth in the world,  only reasoned to start a Federal Gold Reserve in 2023.

Thanks to the lobbyists of the Bretton Woods agreement, the dollar has been hailed as the go to currency and store of value but the effects are far reaching, well beyond the monetary aspect of things.

“Proponents of dollarization often emphasize its potential to stabilize inflation and attract foreign investment,” denotes the BRICS Journal.

Conversely, by so doing, “…dollarization undermines national sovereignty by relinquishing control over monetary policy to external forces.”

Worse still, the adoption of the dollar as a national currency “…potentially erodes cultural identities intertwined with local currencies…it has broader implications of cultural imperialism versus international integration,”

The study underlines the fact that; “In essence, dollarization represents a complex interplay of economic, social, and cultural dynamics.”

On the one hand, it admits that; “While it offers potential economic benefits such as enhanced stability and access to global markets.” 

On the other hand, “…it also raises critical questions regarding national sovereignty, cultural identity, and societal inequalities.”

The paper is very clear in discerning that; “Comprehending the broader historical context and multifaceted nature of dollarization is crucial for gaining a deeper understanding of its implications for national economies, cultural identities, and the dynamics of global power.”

It is based on this ‘deep understanding’ that the BRICS and BRICS Plus, want out. Two World Wars (and political lobbysts) wrought out dollarization, now these countries are pushing for dedollarization , hopefully without having to go through another World War.

The BRICS Journal cites research publications (Gouvea & Gutierrez, 2023) which explain that; “BRICS Plus nations, comprising significant emerging economies, aim to decrease their vulnerability to external economic pressures by diversifying their foreign exchange reserves away from the US dollar.”

Put bluntly, “…dedollarization seeks to mitigate the impact of currency fluctuations and potential sanctions that could disrupt their economic stability.”

Not only are the BRICS Plus looking to forego the dollar, they actually propose their own currencies as alternatives to the dollar.

“Certain BRICS Plus members, particularly China, actively promote their national currencies as alternatives to the US dollar in international trade and financial transactions,” the journal announces.

The end result is; “This effort contributes to de-dollarization and potentially alters the global economic landscape by creating a multipolar currency system.”

Geopolitical tensions driving dedollarization

The paper points to rising geopolitical tensions and evolving economic dynamics as basic aspects that are fueling de-dollarization.

“As BRICS Plus nations gain greater global influence, they may seek to lessen their dependence on the US dollar to mitigate potential political and economic retaliation,” it says.

Further still, the paper points to ‘the pursuit of financial stability’ as another contributor to de-dollarization.

“For example, the recent freezing of Russia’s foreign currency reserves by the US, following the Ukraine invasion, led to a notable decline in the US dollar’s share of global foreign exchange reserves,” the journal details.

As a result, BRICS Plus countries are now exploring alternative currencies for international trade aiming to safeguard their financial stability, it goes on to say.

“The aspirations of BRICS Plus to enhance their economic and geopolitical influence, coupled with the need for increased economic resilience and financial stability, contribute to the ongoing trend of de-dollarization,” the journal details.

Should the trend persist, the journal forsees that; “This shift may lead to a transformation of the global financial landscape, potentially witnessing the US dollar relinquish some of its dominance and alternative currencies gaining greater prominence in international transactions.”

Dedollarization: Not on Trump’s watch

Reuters quotes U.S. President Donald Trump warning the BRICS to back-off from the dollar or rather, to continue embracing it or else.

According to the Reuters report, BRICS nations could face 100 per cent tariffs from the United States “if they want to play games with the dollar.”

It quotes Trump warning the BRICS that if they do not relinquish their dedollarization campaigns, then; “If any trading gets through, it’ll be 100 per cent tariff, at least.”

“You leave the dollar, you’re not doing business with the United States because we’re going to put 100 percent tariff on your goods,” Trump warned BRICS.

“We are going to require a commitment from these seemingly hostile Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar…” Trump Trump has made it clear.

“But if he carried through with such threats, the action would result in slower growth and higher inflation than otherwise in the US and most of the targeted economies,” cautions the Peterson Institute for International Economics.

Read also: Africa’s rising global role as BRICS onboards Egypt and Ethiopia