Donald Trump recently made headlines by threatening to impose 100% tariffs on BRICS nations if they attempt to move away from using the US dollar for international trade. He emphasized the need for a commitment from these countries to not create a new BRICS currency or back any other currency to replace the US dollar. This statement came after a BRICS summit where member countries discussed boosting non-dollar transactions and strengthening local currencies.
After their first summit in Russia 15 years ago, BRIC countries released a joint statement saying, “emerging and developing economies must have a greater voice and representation in international financial institutions”. The group sees BRICS as an alternative to global bodies that it argues are dominated by Western powers, such as the World Bank and International Monetary Fund (IMF).
In 2014, BRICS members set up their own New Development Bank to lend money to developing countries to boost their infrastructure and sustainability. They hope that alternative lending institutions can increase cooperation between emerging economies and reduce dependence on Western-led funding sources. While the U.S. dollar is by far the most-used currency in global business and has survived past challenges to its preeminence, members of the alliance and other developing nations say they are fed up with America’s dominance of the global financial system.
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The dollar represents roughly 58% of the world’s foreign exchange reserves, according to the IMF and major commodities like oil are still primarily bought and sold using dollars. The dollar’s dominance is threatened, however, with BRICS’ growing share of GDP and the alliance’s intent to trade in non-dollar currencies — a process known as de-dollarization.
Investors are also punishing the EUR – the main currency within the DXY US Dollar Index basket – on the back of failed budget talks in France and increasing chances that a no-confidence vote against the current prime minister is approved. Finance Minister Antoine Armand said on Bloomberg television over the weekend that France will not be blackmailed on far-right demands from the National Rally (NR) of Marine Le Pen, which is asking for changes in the budget bill.
The NR President Jordan Bardella said on Monday that its party will trigger a no-confidence vote mechanism “unless there is a last-minute miracle,” Reuters reports. A no-confidence vote could take place as early as Wednesday, and if successful it could bring the French government down. Meanwhile, the US economic calendar is set to kick off with an eventful Monday ahead, with the Institute for Supply Management (ISM) releasing its Manufacturing PMI numbers for November.
An Atlantic Council model that assesses the dollar’s place as the primary global reserve currency states the dollar is “secure in the near and medium term” and continues to dominate other currencies. President Elect Donald Trump’s latest tariff threat comes after he threatened to slap 25% tariffs on everything imported from Mexico and Canada, and an additional 10% tax on goods from China, as a way to force the countries to do more to halt the flow of illegal immigration and drugs into the U.S.