Donald Trump has pledged to make countries pay for shifting away from using the US dollar. “You leave the dollar and you’re not doing business with the United States because we are going to put a 100 percent tariff on your goods,” the Republican presidential nominee said at a rally in Wisconsin.
Trump’s statement follows months of discussions between the former US president and his economic advisers on ways to penalise allies or adversaries who seek active ways to engage in bilateral trade in currencies other than the dollar, Bloomberg reported. Trump said the dollar has been “under major siege” for eight years.
China, India, Brazil, Russia and South Africa discussed de-dollarisation at a summit last year.
The dominance of the US dollar in international trade and finance has faced increasing challenges in recent years. The trend known as de-dollarisation refers to the process by which countries aim to reduce their reliance on the US dollar as the dominant global currency.
Attempts at de-dollarisation through initiatives like BRICS (Brazil, Russia, India, China, and South Africa) is facing significant challenges making consensus on a common currency and monetary policy difficult to achieve.
While dollar dominance has lessened in recent decades, the US currency still accounted for 59 percent of official foreign-exchange reserves in the first quarter of 2024, with the euro second at almost 20 percent, according to the International Monetary Fund. Approximately half of world trade is denominated in dollars, according to the Bank of International Settlements.
India's rupee push
Of late, India is increasingly pushing attempts to increase trade settlement in rupee and reduce reliance on the dollar, an ambition that has evaded most nations.
Reuters also reported last year that Indian refiners have begun paying for most of their Russian oil purchased via Dubai-based traders in dirhams instead of dollars.
Finance Minister Nirmala Sitharaman has said many countries are negotiating to start trade in rupee as the country's fundamentals are strong and the Indian unit has been "mostly stable" against most of the international currencies.
India has started trade in the rupee with neighbouring countries, including Nepal and Bhutan. The rupee trade mechanism has been initiated to facilitate trade in national currency with Russia, while Sri Lanka has included the rupee in its list of designated foreign currencies.
India and the UAE have begun Rupee-Dirham direct trade in local currencies, and the two sides plan to expand bilateral trade to $100 billion under their free trade pact. Both countries signed the CEPA in February 2022 and a Local Currency Settlement (LCS) System in July 2023 to promote the use of Indian Rupee and AED (United Arab Emirates Dirham) for cross-border transactions. The CEPA came into force from May 1, 2022.
India had already used Rupee to pay for increased crude purchases from Russia following US sanctions on the country after its Ukraine invasion. The Reserve Bank of India approved 34 applications in 2023 of different Russian banks for opening rupee accounts with Indian banks to facilitate two-way trade in the backdrop of Western sanctions.