Our expectation was that de-dollarisation would continue its slow progress. However, the ideological shift under a potential second Trump administration could accelerate this process. This states Mali Chivakul, Emerging Markets Economist at J. Safra Sarasin.
Over the past decade, the BRICS countries have laid the groundwork for de-dollarisation, but with limited success. The BRICS currencies are far from meeting all the criteria for a reserve currency, including stability, liquidity, market depth and adherence to the rule of law. Moreover, not all members fully support the de-dollarisation agenda driven by Russia and China.
Indian officials, for example, have publicly stated that their country is not actively pursuing de-dollarisation. India’s main motivation for participating in an alternative system is to maintain trade relations with countries that have difficulties trading in US dollars. Even if BRICS members are not actively pursuing de-dollarisation, potential new US currency policies are likely to cause them to reconsider their positions.
Stephen Miran, chairman of the US Council of Economic Advisers, has argued that the dollar’s dominant global role increases its demand and value. However, this leads to reduced export competitiveness, persistent trade deficits and the erosion of US manufacturing. At the same time, the dollar’s dominance provides benefits and policy leverage, such as lower interest rates and the ability to impose financial sanctions.
While US policymakers want to preserve the dollar’s status as the world’s reserve currency, they also want to share the associated “burden”. This could involve imposing tariffs on trading partners or introducing measures such as a user fee or swapping into non-interest-bearing or low-interest-bearing century bonds for foreign Treasury holders. US allies would likely benefit from its security umbrella and reduced burden.
This potential new stance could have several consequences. Higher tariffs might reduce demand for the dollar if countries like China increase trade with other emerging economies, settling transactions in renminbi or local currencies. A user fee or century bonds could make holding US dollar assets less attractive, potentially weakening the dollar. Furthermore, an emphasis on US financial extraterritoriality could encourage more countries to explore alternative payment systems. The new BRICS Pay system, introduced last October, could be useful in this context.
Although US dollar dominance remains firmly established, the pace of de-dollarisation could accelerate. Gold is expected to be the main beneficiary of this trend. In addition, with Europe’s new fiscal expansion plan, the euro could become another viable option for BRICS countries to hold liquidity in an increasingly multi-polar world.
