Donald Trump has vowed to make nations pay a steep price for abandoning the US dollar in trade transactions. “If you forsake the dollar, you won’t be doing business with the United States, because we will impose a 100 percent tariff on your goods,” the Republican frontrunner declared during a rally in Wisconsin.
Donald Trump Tariff Proposal: A Radical Shift in U.S. Trade Policy
This proclamation follows months of deliberations between the former US president and his economic advisors on methods to penalize both allies and adversaries opting for bilateral trade agreements that bypass the US dollar, Bloomberg reported. Donald Trump further stated that the dollar has been under “intense assault” for the past eight years.
China, India, Brazil, Russia, and South Africa previously engaged in discussions about reducing reliance on the US dollar at a summit last year.
Donald Trump says, In recent years the US dollar’s dominance in global commerce and finance has increasingly come under scrutiny. This trend, known as de-dollarisation, refers to the deliberate efforts of countries to lessen their dependency on the dollar as the leading international currency.
Despite the aspirations of initiatives such as BRICS (Brazil, Russia, India, China, and South Africa) to promote de-dollarisation, formidable obstacles remain. Establishing a unified currency and coordinated monetary policies across diverse nations has proven difficult.
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Though the dollar’s supremacy has somewhat waned in recent decades, the US currency still represented 59 percent of global foreign-exchange reserves as of the first quarter of 2024, according to the International Monetary Fund, with the euro trailing at nearly 20 percent. Additionally, nearly half of the world’s trade continues to be conducted in dollars, as per data from the Bank for International Settlements.
India’s Push for Rupee Trade: A Bold Strategy to Challenge the Dollar
Indian, in particular, has been making considerable efforts to settle trade in its national currency, the rupee, reducing dependence on the dollar—a goal that has historically eluded most nations.
Reuters reported last year that Indian refiners have increasingly been paying for their Russian oil purchases via Dubai-based traders in dirhams rather than dollars.
India’s Rupee Endeavor
Indian Finance Minister Nirmala Sitharaman has emphasized that several countries are currently in talks to begin trading in rupees, citing India’s robust economic fundamentals and the relative stability of its currency against most other major international currencies.
Indian has initiated rupee-based trade with neighboring countries, such as Nepal and Bhutan. Additionally, a rupee trade mechanism has been established to facilitate transactions with Russia, while Sri Lanka has included the rupee in its roster of recognized foreign currencies.
India And UAE Trade
India and the United Arab Emirates have commenced direct rupee-dirham trade in local currencies. Both nations have set their sights on expanding their bilateral trade to $100 billion under their free trade agreement. The two countries signed the Comprehensive Economic Partnership Agreement (CEPA) in February 2022, followed by a Local Currency Settlement (LCS) system in July 2023, aimed at promoting the use of the Indian rupee and UAE dirham for cross-border dealings. CEPA took effect on May 1, 2022.
Indian has already used the rupee to make elevated crude oil purchases from Russia, following US sanctions on Moscow after the invasion of Ukraine. In 2023, the Reserve Bank of India approved 34 applications from various Russian banks to open rupee accounts with Indian banks, enabling two-way trade despite Western sanctions.
