Republican presidential candidate threatens BRICS with severe economic sanctions if they turn away from the dollar. Bitcoin as an alternative…
Donald Trump worries about the dollar
Donald Trump is wielding both the carrot and the stick. The carrot came on Friday with the promise to lift sanctions:
“I myself used sanctions, but I lifted them as quickly as possible so as not to kill the dollar. […] We have lost Iran, Russia and China is trying to make its currency the dominant currency. The dollar is losing its dominance.”
Indeed, the transaction volume of China's cross-border payment system CIPS was 123 trillion yuan in 2023 ($17 trillion). This figure is on track to double this year to around $34 trillion. Compare this with the 150 trillion exchanged via the Swift network.
Even the IMF recently found that the use of the yuan in cross-border payments increased from 0% in 2014 to 20% in 2021 (out of a sample of 125 countries). A quarter of these countries predominantly use the yuan to trade with China.
The stick was not long in coming. Donald Trump declared the very next day that “the dollar is under siege”.
“We have to make sure that the dollar remains the international reserve currency. This is what I will say to the recalcitrant countries: If you abandon the dollar, you no longer trade with the United States. We will impose 100% tariffs on your goods.”he said at a rally in Wisconsin.
This is a threat to China and the BRICS in general. That is, the countries that have made de-dollarization a priority since the freezing of Russia's foreign exchange reserves (~300 billion euros).
The dollar no longer has a place in a multipolar world
As Russian Foreign Minister Sergei Lavrov said upon taking over the rotating presidency of the UN Security Council in July:
“Restoring the balance of regional and international power must be accompanied by eliminating the injustices at the heart of the global economy. There can be no monetary monopoly in a multipolar world.”
The dollar's monopoly as the global pivot currency is what is known as the famous “exorbitant privilege”. It is also called the “petrodollar system” because all the Gulf petromonarchies sell their naphtha exclusively in dollars.
Iraq, Libya, Syria and Iran have all refused the dollar with the consequences that we know… Washington does not hesitate to destroy entire countries to protect its monetary hegemony. Indeed, the more the dollar circulates internationally, the more the United States can afford to print it to import ever more.
Today, the world holds more than $7 trillion in reserves. This is money that is not exchanged for other currencies and that artificially supports the value of the dollar despite an abysmal trade deficit.
But all good things must come to an end. The nations now turning away from the dollar are major military powers that are no longer intimidated by American threats. The failure to weaken Vladimir Putin through the war in Ukraine is a case in point.
Hence Donald Trump's threat of economic war. But again, does the United States really have the weight?
The BRICS behemoth
The BRICS represent almost half of the world's population (46%), compared to just under 10% for the G7 (United States, Canada, Japan, United Kingdom, Germany, France and Italy).
The BRICS' global share of GDP is now 35% (ppp), compared to 30% for the G7. According to Mckinsey, Asia accounts for 50% of global merchandise trade. China is the largest trading partner for more than 120 countries:
To be clear, it is not certain that the United States is still in a position of strength. With their backs to the wall, at least 120 countries will probably prefer to maintain their trade relations with China rather than with the United States.
Besides, let's not forget that raising customs fees means inflation for Americans. Peterson Institute for Economics calculated that imposing a 20% overall tariff combined with a 60% tariff on China would cost the average American household more than $2,600 per year.
This is why Donald Trump doesn’t want the Fed to raise interest rates. He knows his foreign policy could be extremely inflationary. This bodes well for bitcoin, whose fixed, stateless, and uncensorable money supply makes it a potential international reserve currency.
That’s why Mr. Trump has the idea of creating a strategic reserve of bitcoin before anyone else. The giant asset management firm Alliance Bernstein estimates that a Donald Trump victory in November will propel bitcoin to $90,000 before the end of the year.
Let's end by recalling that Republican Senator Cynthia Lummis drafted a bill ordering the US Treasury to purchase one million bitcoins.
Don’t miss our article: “BRICS – 120 countries ready to de-dollarize”.
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