“America First” policy could speed up search for an alternative to the US dollar for international trade, something the BRICS nations have already mooted, says this finance professor from the University of Stirling.
File photo of the Euro, Hong Kong dollar, US dollar, Japanese yen, British pound and Chinese yuan banknotes. strengthen. It surged to a one-year high within two weeks, and has since retained its strength against its major peers. His election has also again brought the prospect of US tariffs on imports, and attention has focused on the disruption to global trade that these may bring.should they create a rival to the US dollar, which has been the world’s “dominant currency” since World War II.
Indeed, the US dollar is used in more than 50 per cent of foreign trade invoices, and over 80 per cent of all foreign exchange transactions worldwide. However, it is possible that Trump’s “America First” foreign policy could serve to hasten the end of the US dollar’s dominance.Dollarisation is beneficial for global trade. But it brings particular benefits to the US, as other countries need to hold US dollars to facilitate trade and pay for many commodities.
During his first term, such calls grew louder. And there have been some shifts in US dollar holdings since then, to the extent that global US dollar reserves have declined.So, which Trump policies could hasten the end of US dollar dominance? The incoming president is regarded as pro-business, which will probably translate into policies aimed at lowering regulation and taxes. Stimulating domestic growth will lead to an even stronger US dollar at a time when global output is more modest.
The effect of these policies might be considered unintentional. But other policies, such as Trump’s plan for higher tariffs, are more deliberately designed. To avoid elements of this, countries could agree to use alternatives as a reserve currency and a means to pay for international commodities. The BRICS nations have mooted a separate currency, which could revolve around one or more existing currencies like the Euro or yuan. Trump’s threats may simply speed up this search for an alternative.
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