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Journalism of Courage
Donald Trump has threatened the BRICS (Brazil, Russia, India, China, and South Africa) countries with 100% import tariffs if they create their own currency or back an existing currency to replace the United States dollar as the world’s reserve currency.
“We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar, or they will face 100 per cent tariffs and should expect to say goodbye to selling into the wonderful US economy,” the US President-elect posted on social media over the weekend.
Ever since the US threw Iran and Russia out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is key to international financial transactions, countries around the world, including India, have looked to reduce dependence on the US dollar, as well as on the US-led global financial system.
At the BRICS summit in Kazan in October, Russian President Vladimir Putin said: “The dollar is being used as a weapon. We really see that this is so. I think that this is a big mistake by those who do this.”
At the 2023 BRICS summit in Johannesburg, President Luiz Inacio Lula da Silva of Brazil had said the “creation of a new [BRICS] currency…increases our payment options and reduces our vulnerabilities”.
In an attempt to reduce reliance on the US dollar and to internationalise the Indian rupee, the Reserve Bank of India allowed invoicing and payments for international trade in Indian rupees in 2022, after sanctions were imposed on Russia amid the war in Ukraine.
In his remarks at Kazan, Prime Minister Narendra Modi said India “welcome[d] efforts to increase financial integration among BRICS countries”, and “trade in local currencies and smooth cross-border payments will strengthen our economic cooperation”.
Last month, External Affairs Minister S Jaishankar told the India-Russia Intergovernmental Commission meeting in Mumbai that “mutual settlement of trade in national currencies is of great importance, especially in the current circumstances”.
India’s trade with Russia in domestic currency remains low due to Indian banks’ fear of US sanctions, and an unbalanced trade relationship between the countries — Indian imports far outstrip its exports. Russia has, therefore, not been able to use its huge pile of rupee reserves to settle bilateral trade dues, and has used it to invest in Indian stocks and bonds instead.
The more balanced Russia-China trade, by contrast, has helped transactions using the yuan and ruble. According to the Russian government, more than 90% of trade settlement between the two countries is now done in rubles.
…But not targeting US dollar
In October Jaishankar had clarified that while US policies often complicate trade with certain countries, and India sought “workarounds” in pursuit of its trade interests, it did not “target” the dollar or seek to move away from it.
“We have never actively targeted the dollar. That’s not part of our economic, political, or strategic policy. Some others may have done so. What I will say is that we have a natural concern. We often have trade partners who lack dollars for transactions. So, we must decide whether to forgo dealings with them or find alternative settlements that work. There’s no malicious intent towards the dollar,” Jaishankar said in response to a question at the Carnegie Endowment for International Peace, an American think tank in Washington DC.
The Triennial Central Bank Survey 2022 of the Bank for International Settlements (BIS), an international financial institution owned by member central banks, showed the US dollar accounted for 88% of the global forex turnover. The rupee accounted for 1.6% per cent.
While the dollar dominates global trade — accounting for more than 90% of transactions — it is not the only currency used internationally. Other convertible currencies like the Japanese yen, the euro, and the British pound are also integral to global commerce, and the US has not objected to their use. The proposed BRICS currency is simply another of these alternatives, aimed at facilitating trade among member countries and reducing over-reliance on a single currency, international trade experts said.
“It is the actions of the United States that have pushed many countries to seek alternatives to the US dollar. The US has a history of leveraging its influence over global financial systems, such as the SWIFT network, to impose unilateral sanctions. SWIFT is essential for secure and standardised international financial transactions. By blocking countries like Russia and Iran from accessing SWIFT, the US has effectively weaponised the global financial infrastructure, forcing other nations to find alternative payment mechanisms to continue legitimate trade,” Ajay Srivastava, head of the think tank Global Trade Research Initiative, and a former Indian government trade official, said.
According to Srivastava, a 100% tariff on BRICS countries would ultimately hurt the US. “Imports into the US would shift to third countries, potentially increasing costs for American consumers without bringing manufacturing jobs back home. The US has become less competitive in manufacturing labour-intensive goods due to higher production costs, and tariffs are unlikely to reverse this,” he said.
Need for China caution
Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations (FIEO), the country’s top trade promotion organisation, said that while supporting local currency initiatives, India should ensure the framework does not disproportionately favour China, given the asymmetry in economic power among BRICS nations.
“China is very keen to assume a dominant role to use the bloc against the US, though India, Brazil, and South Africa are more keen to work with the US and settle the differences amicably through negotiations,” Sahai said. India should engage diplomatically with the US to explain its position, emphasising that diversifying trade mechanisms is not anti-American but a move towards multipolarity and financial stability, he said.
India should accelerate its Central Bank Digital Currency (CBDC) initiative and push for internationalisation of financial platforms such as Unified Payments Interface (UPI), Sahai said.
“Trump’s threat is unlikely to deter BRICS nations from pursuing alternatives to the US dollar. For India, the best course is a balanced approach: supporting financial reforms within BRICS that align with its interests while maintaining strong ties with the US to safeguard its broader strategic and economic priorities,” he said.
The Currency Composition of Official Foreign Exchange Reserves (COFER) of the International Monetary Fund (IMF) shows a gradual decline in the share of the dollar in central bank and government foreign reserves. However, the reduced role of the dollar over the past two decades has not been matched by corresponding increases in the shares of the euro, yen, and pound, according to the IMF.
“Rather, this has been accompanied by a rise in the share of…non-traditional reserve currencies, including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and the Nordic currencies,” the IMF said in a blog published in July. The gains of the renminbi in particular, “match a quarter of the decline in the dollar’s share”, the blog said, confirming a trend it had also flagged in a paper in 2022.
