Donald Trump, the Republican candidate for president, declared on Saturday that he would levy a 100% tariff on goods coming from nations that stop trading in US dollars. This idea is a component of Trump's larger plan to thwart attempts by China, India, and other countries to dedollarize their trade. The declaration is made as Trump keeps pushing protectionist measures, claiming that the US dollar is "under major siege" and restating his commitment to keeping it as the reserve currency of the world.
At a Wisconsin rally, Trump proclaimed, "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," demonstrating his adamant opposition
to protectionism.
Trump and his economic advisors have held lengthy discussions and explored
a variety of measures to penalize countries that trade in currencies other than
the dollar before coming to this announcement. These include tariffs, charges of
currency manipulation, and export restrictions, according to Bloomberg News.
For Trump, upholding the dollar's hegemony is crucial. China, India,
Brazil, Russia, and South Africa convened recently to discuss de-dollarization,
which has intensified the economic message of his campaign. The International
Monetary Fund reports that as of early 2024, the dollar still held a 59% share of
official foreign exchange reserves, despite its gradual decline in dominance. The
next closest currency, the euro, held roughly 20%, according to
US Election 2024: Global Currency Dynamics Report from JPMorgan A recent JPMorgan
report highlights the US dollar's dominance in international markets while
examining the changing dynamics of world currencies. Increases in bank deposits
denominated in dollars, activity from sovereign wealth funds, and non-reserve
foreign assets have more than made up for the decline in its share of emerging
market foreign exchange reserves. The report observed that record debt issuance
is the primary reason behind the dollar's increasing share of global liabilities.
Geopolitical trends, like the rise in non-USD commodity trading and
alternative payment methods, point to some shifts, but JPMorgan projects decades
before the dollar's hegemony over the world is seriously undermined. The report made
clear that it is incorrect to see falling foreign exchange reserve holdings as
a sign of de-dollarization.
US Election 2024: Changes in International Payments and Commodities Notable shifts were also
noted by JPMorgan in the commodity markets, where trading in oil is
increasingly conducted in currencies other than USD. Growing diversification
efforts can be seen in the rising demand for gold among central banks and
consumers in emerging markets. The report did, however, issue a warning
regarding the dangers of possible fragmentation in the international payment
system, in which the dollar has traditionally been essential.
New challenges to the dollar's hegemony come from geopolitical developments, such as China's and Russia's attempts to get around US-controlled systems like SWIFT. According to JPMorgan, the emergence of central bank digital currencies (CBDCs) may also make it possible for nations to conduct future business without using the US financial system.
Disintermediation of Dollars and the BRICS Group
The term "dollar disintermediation" describes international
initiatives to lessen the US dollar's hegemony in international trade and
finance, especially within the BRICS (Brazil, Russia, India, China, and South
Africa) bloc. The USD has long been the world's reserve currency for commodities
pricing, foreign exchange markets, and international debt issuance. The US
economy only accounts for 25% of the world's GDP, but its disproportionate
influence underscores its "exorbitant privilege."
Change in Preferences for Global Reserve Currency
Presidents Lula da Silva of Brazil and Vladimir Putin of Russia are
among the BRICS leaders who are increasingly keen to abandon the dollar, according
to a new report from the Observer Research Foundation. By 2022, only 58% of the
world's foreign exchange reserves were held in the USD, down from 85% in the
1970s. While simultaneously building up their gold reserves, nations are shifting
more and more towards alternative currencies like the Chinese renminbi (CNY),
the Swiss franc, and the Australian and Canadian dollars. Even though the
renminbi is rising, the dollar's hegemony is still far from being challenged.
In order for the renminbi to become a worldwide reserve currency, it must overcome structural obstacles like the requirement for complete convertibility and increased market transparency. A unified BRICS currency is also hampered by the reluctance of BRICS member states to cede their monetary sovereignty.
The BRICS countries are creating alternative financial infrastructures to lessen their reliance on the dollar in international trade, even though a move away from the dollar as the world's reserve currency is unlikely in the near future. Projects such as Russia's SPFS, India's UPI, and China's UnionPay serve as examples of this trend.
Moreover, geopolitical considerations and sanctions—especially in the case of Russia after the conflict in Ukraine—have prompted China to establish CIPS and to work with Russia to develop an alternative to SWIFT.
In the past, most transactions involving commodities like oil and natural gas have been conducted on Western exchanges and have been valued in US dollars. But it's anticipated that the BRICS expansion—which currently consists of Saudi Arabia, the United Arab Emirates, Iran, Egypt, Argentina, and Ethiopia—will change the dynamics of the world's oil market. BRICS+ currently holds 43% of the world's oil production.
Trading of Oil in Local Currency
The enlarged BRICS bloc presents a chance for China and India, two significant oil importers, to negotiate oil imports in their own currencies, lessening reliance on the dollar-based system. China has already started down this path by entering into currency swap agreements to settle oil transactions in renminbi (CNY) with major oil producing nations like Saudi Arabia and Russia.
Chinese President Xi Jinping suggested utilizing the Shanghai Petroleum and Natural Gas Exchange for CNY-denominated oil and gas trades in December 2022, while on a state visit to Saudi Arabia. This move would further reduce reliance on the USD in the energy markets. The successful renminbi-based oil trade between China's CNOOC and France's Total Energies was a significant turning point in this endeavor.
China and Saudi Arabia renewed their currency swap agreement and signed a memorandum of understanding to investigate the creation of a Central Bank Digital Currency (CBDC) after the 2023 BRICS Summit.
This action suggests a possible shift toward a cross-border clearing system that supports multiple currencies, which might lessen the US dollar's hegemony in the pricing and trading of commodities. In the global commodity markets, the BRICS countries are moving toward a more diversified currency usage through the use of digital currencies and alternative payment infrastructures.
At this critical juncture in the presidential contest, Trump makes his statement. In Wisconsin, a crucial battleground state, working-class voters unhappy with President Joe Biden's economic policies are pitting Trump against Democratic opponent Kamala Harris for their support. In Wisconsin, Harris now leads Trump by 8 percentage points, the biggest lead of any of the seven battleground states polled, according to a Bloomberg News/Morning Consult survey.
After stops in North Carolina and Pennsylvania, Trump's campaign trail concluded with a rally in Wisconsin. He gave a significant speech on the economy earlier this week in New York City. Kamala Harris, meanwhile, spent her Saturday in Pennsylvania getting ready for her upcoming debate with Trump, which could have a significant impact on the result of the election.
Given that Trump's campaign is centered on protecting the dollar and economic nationalism, there will be significant global ramifications for nations like India, which has been engaged in de-dollarization discussions. The US's changing trading partnerships with other countries will continue to be a major concern in the run-up to the election.
Trump's policies are intended to make nations reconsider their decisions to stop using the dollar in international trade. The significance of the impending election is increased by these developments, which draw attention to the escalating tensions between the US and other major economic powers.
No comments:
Post a Comment