BRICS don’t threaten the Dollar, the US does

By Mihir Sharma

Few leaders can tilt at imaginary windmills with as much panache as Donald Trump. He demonstrated that again when he recently demanded that the BRICS nations “commit” that “they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty US Dollar.” To nobody’s surprise, this demand was backed by the threat of tariff increases.

Some of his targets in the grouping, which once contained just Brazil, Russia, India, China, and South Africa but was expanded earlier this year, rushed to placate him. South Africa released an official statement to affirm no common currency was planned, and India’s foreign minister insisted that BRICS nations had “no interest in weakening the US dollar.”

These attempts to correct Trump, however, also underscored what the incoming US president should really be worried about. The South Africans pointed out that BRICS countries merely wanted to conduct trade within the grouping in member currencies. Jaishankar described that as a perfectly legitimate de-risking measure.

Doing so may not be possible now and frankly may never be. International trade, even between the 10 or so nations that compose the BRICS grouping, is fiendishly complex. India may want to buy more Russian oil, for example, but unless it can find buyers in Russia for Indian goods, trade in rubles or rupees will be unsustainable. Moscow will wind up sitting on rupees that it doesn’t know how to spend.

But all that is beside the point. Whether or not it is easy, whatever Trump may say or do, the BRICS countries — and others like them — are going to keep looking for ways to settle international transactions without using dollars. In doing so, their purpose is not to hurt the US economy or to challenge the primacy of the dollar. They want to carve out a section of the financial system that isn’t subject to US power.

Countries such as the United Arab Emirates, which have long served as clearinghouses for financial dealings between opposing geopolitical blocs, have sought something like this for at least a decade. But the goal has become more urgent in a time increasingly defined by trade wars and geopolitics-driven decoupling.

New Delhi has never been as enthusiastic about this effort as others. But Indian policymakers feel bruised by over a decade of managing US sanctions. One recently told me that, over the past several years, India stopped importing oil from one of its largest trading partners, Venezuela, because of US strictures. Venezuela was replaced by Iran, which soon presented the same problems; and now India has to find some way to manage trade with Russia. The incentive to set up payment mechanisms that aren’t subject to US oversight is obvious even to the most Western-leaning officials in Delhi.

While the complexity of global trade makes replacing the dollar difficult, it also means that the need to find alternatives, however temporary or partial, is felt by more and more companies and nations. The number of dual-use goods and financial corporations subject to US sanctions increases almost monthly.

As with any restrictions on the market, this means someone will find a way to make money by ensuring that trade takes place anyway. Even largely Western-backed institutions, such as the Bank for International Settlements, which is controlled by multiple central banks, have launched projects meant to transfer value independently of the US dollar — though the BIS had to exit that effort a few weeks ago, following complaints from Western capitals.

No such attempts were made when the rest of the world saw the US dollar as a common good. Countries could trade with it, invest in it, and freely convert it. In return, the US gained the “exorbitant privilege” of controlling the world’s reserve currency. That has allowed politicians to tolerate deficits of all kinds that would have ruined a lesser power.

If Trump wants to maintain the dollar’s primacy, he should recognise that its value is not dependent on American power and threats, but on American reliability. Overreach — whether through ad hoc sanctions, meddling with the Federal Reserve, unilateral tariffs or geopolitical confrontations — poses a far greater threat to the US currency than anything the BRICS countries could possibly devise.