There has been a lot of talk within the BRICS+ grouping about “de-dollarisation”, particularly after the G7 froze Russia’s central bank reserves held offshore and shut it out of the dollar-dominated global financial system after its invasion of Ukraine, but there’s been little progress.

At the BRICS+ summit hosted by Vladimir Putin in Kazan in Russia in October, Putin called for a new international payment system to thwart America’s ability to use the dollar’s dominance as a weapon.

Russia has been developing two new platforms, BRICS Pay and BRICS Bridge, as alternatives to the West’s SWIFT financial messaging system and as a new digital payments platform that would enable users to circumvent the architecture of the existing US-dominated system that has enabled the US and its allies to impose financial sanctions. China also has a cross-border payment system for clearing and settling renminbi-denominated transactions.

While there has been increased use of bilateral deals involving non-dollar currencies – trade between China and Russia is conducted predominantly in yuan and roubles and there have been some Middle Eastern oil deals settled in yuan – there has been no material progress towards the development and acceptance of the proposed alternatives to the existing platforms and the dollar’s hegemony.

What makes Trump’s threat of 100 per cent tariffs potent is that some of the louder voices advocating de-dollarisation, most notably Brazil, are also heavily dependent on trade with the US or have substantial US dollar liabilities. The US is Brazil’s second-largest trading partner.

India has expressed no interest in de-dollarisation but is interested in bilateral deals with economies such as Russia and China that the US and its allies have sanctioned. India has been a major buyer of Russia’s sanctioned oil.

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The challenge confronting China, Russia and others that would like to see the dollar’s centrality to the global financial system challenged is that, while its status has been gradually eroding, the dollar remains dominant.

It still constitutes about 58 per cent of central banks’ foreign exchange reserves, is used in about 88 per cent of international trade transactions, is the currency for more than 60 per cent of global debt securities and 53 per cent of foreign liabilities. China’s yuan, by comparison, has a share of a fraction more than 2 per cent of central bank reserves.

While dollar dominance stems from history – the emergence of US power after World War II, and the Bretton Woods agreement in 1944 that designed the postwar global financial system – it is built on the foundations of the US economy, US capital markets and the US legal system.

China might now rival the US economy in size, but it has nothing like the US bond market and sharemarket’s depth and liquidity; it doesn’t have a legal system that is transparent and trusted; it doesn’t have a free-floating currency, and it doesn’t have an independent central bank. It does have capital controls, which are another deterrent.

The other problem for advocates of alternatives to the dollar – whether it is a new currency or a security based on a basket of other currencies, like the IMF’s special drawing rights (SDRs), or a substantial increase in bilateral deals – is the matter of which country would want to swap dollar dominance for yuan-dominance (the yuan would dominate any BRICS version of an SDR) or swap their existing US dollar reserves for similar holdings of yuan or roubles?

Other countries, particularly China and Russia, are envious and fearful of the dollar because of the global power it gives the US and the demonstration of its effects are the sanctions on Russia. There are plenty of countries, particularly with the imminent return of Trump to the White House, that would like to sanctions-proof their economies.

They also see that dollar dominance gives the US what might be regarded as an unfair advantage.

It can borrow more freely and cheaply than anyone else and enables Americans, on average, to have a more affluent lifestyle than would otherwise be the case. The US can run outsized budget deficits and run up government debt (now $US36 trillion, or $55.3 trillion) with near impunity.

There are plenty of countries, particularly with the imminent return of Trump to the White House, that would like to sanctions-proof their economies.

Deploying 100 per cent tariffs against the relatively small volume of trade deals being executed in currencies other than the US dollar would, at this point, be overkill. China and Russia may be interested in developing rival platforms for international financial transactions but because there is no consensus among the BRICS, it is a distant one at best.

More tariffs – beyond the duties of up to 20 per cent Trump has said he will impose on all imports to the US and a 60 per cent rate on imports from China – would only add to the costs US companies and consumers would be forced to absorb and to US inflation and interest rates. Not that Trump appears to understand that.

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It’s not clear what prompted Trump to post his latest tariff threat. There was no obvious new development for him to respond to.

As we saw with his threatened tariffs on imports from Mexico and Canada, supposedly because of their roles in facilitating illegal immigration and fentanyl imports, the threat of the tariffs, even from someone who is not yet in the White House, unsettles and intimidates America’s friends and foes alike.

Canada’s prime minister, Justin Trudeau, immediately scuttled off to Mar-a-Largo to plead his country’s case with the president-in-waiting, which would have added to Trump’s conviction that, not only are trade wars good and easy to win but even the threat of one forces other countries’ leaders to humble themselves before him, acknowledge his authority and power, and plead for his dispensations.

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