The U.S. President-elect, Donald Trump, has threatened BRICS nations (Brazil, Russia, India, China, and South Africa) with 100% import tariffs if they create their own currency or back an existing currency to replace the U.S. dollar as the world’s reserve currency.
What Provoked Trump’s Reaction?
- Trump emphasized that the U.S. seeks a commitment from BRICS countries to not challenge the dominance of the U.S. dollar.
- The U.S. perceives this move as a threat to its global economic influence.
Statements from BRICS Leaders
- Russia: President Vladimir Putin, during the BRICS Summit in Kazan, stated that the dollar is being used as a “weapon,” which has prompted efforts to reduce dependency on it.
- Brazil: President Luiz Inácio Lula da Silva supported the creation of a new BRICS currency to provide alternatives and reduce vulnerabilities.
Implications of a BRICS Currency
Pros
- Reduced Dollar Dependency: Decreases economic vulnerabilities and exposure to dollar fluctuations.
- Enhanced Sovereignty: Offers greater control over monetary policies and trade.
- Diversified Financial System: Encourages a multipolar economic order.
- Cost Efficiency: Eliminates currency conversion costs in intra-BRICS trade.
- Stronger Alliances: Strengthens regional cooperation and integration.
Cons
- Economic Imbalance: Dominance of larger economies like China may marginalize smaller members.
- Implementation Challenges: Requires extensive coordination and may take years to operationalize.
- Global Resistance: Could struggle to gain global trust and challenge the dollar’s hegemony.
- U.S. Retaliation: Risk of sanctions and trade disruptions from the U.S.
- Internal Conflicts: Potential disagreements over governance and currency valuation.
Internationalization of the Rupee
- India’s Perspective:
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- India has taken steps to internationalize the rupee and reduce reliance on the U.S. dollar.
- The Reserve Bank of India (RBI) allowed invoicing and payments in rupees for international trade, strengthening the currency’s role globally.
- Russia’s Collaboration:
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- Russia’s trade settlements with India increasingly use the rupee and the ruble instead of the dollar.
- Over 90% of bilateral trade between Russia and China is settled in their own currencies.
