US President-elect Donald Trump issued a warning to the BRICS+ nations, demanding assurances that they would refrain from pursuing the creation of a new reserve currency to rival the US dollar. He also reiterated his threat to impose a 100% tariff on their exports should they continue any attempts to move away from the dollar. While there is plenty to say about Washington’s weaponisation of the global reserve currency, and how doubling down that route might not be the best way to encourage countries to keep using it, what’s important for markets is that Trump’s tariff threats provide a glimpse of what lies ahead in the coming four years as he will aim to improve on existing trade agreements for the US’s benefit.
Trump’s use of hyperbolic language suggests that his threats are part of a broader negotiation with the rest of the world, and it will be interesting to see how ascending powers such as the BRICS+ alliance responds. It is, however, clear that Trump is posturing more than anything else, as use of the USD is inescapable for commodity-exporting nations at this point. Commodities are typically priced and traded in US dollars. According to the 2022 BIS triennial survey, approximately 88% of global trade is conducted in USD. The emergence of a new currency from a coalition of countries, such as the BRICS, is unlikely to alter this dynamic significantly. This assumes the BRICS nations successfully establish their own currency and foster sufficient intra-bloc trade to create a liquidity pool deep enough to attract widespread adoption by the banking sector. All that to say the threat posed to the USD by a BRICS currency is extremely low. However, the constant threat of US tariffs will still keep markets cautious and volatile in the coming years.