EDITORIAL: US President-elect Donald Trump wrote on Truth Social, his social media platform, that if BRICS countries (Brazil, Russia, India, China and South Africa) do not use the dollar as their reserve currency the United States would impose 100 percent tariffs.
BRICS has granted full membership to four countries - Iran, Egypt, Ethiopia, and the United Arab Emirates - while Saudi Arabia has not yet responded to an invite to become a full member.
During the recent BRICS summit meeting in Kazan 13 countries were invited to participate as partner countries though no membership invitations were extended. The list of those seeking membership is reportedly close to 40, including Pakistan.
Be that as it may, the transactional dominance of the dollar remains with around 88 percent share, record high, in trade invoicing, cross border liabilities and foreign currency debt issuance; while the dollar’s share in SWIFT (Society for Worldwide Interbank Financial Telecommunications) is at 43 percent (Euro’s at 32 percent with the Eurozone countries toeing the US foreign policy line especially with respect to imposing sanctions), which gives the US powers to monitor and stop all payments.
Trump known for making standalone statements has clearly not considered three prevailing factors: (i) the US share of global Gross Domestic Product has been steadily declining - from 45 percent after World War II to 25 percent today - a decline attributable to globalisation with US manufacturing shifting to countries where cheaper inputs were available and the consequent rise of China; (ii) Yuefen Li, Economist and Special Adviser on South-South Cooperation and Development Finance, South Centre, Geneva, writing for the International Banker argues that the “the supremacy of the dollar gives rise to global demand for it as a safe asset for foreign reserves and investments.
This exorbitant advantage allows the US to import foreign goods and services more often than not at a low rate when compared to the sizeable excess in return on US-backed capital exported back to the rest of the world, including interest income, portfolio equity positions and other capital exports in dollars;” and Li cites a study by Gourinchas and Rey that concluded that “US foreign liabilities are almost entirely in dollars, with 70 percent US foreign assets in foreign currencies implying thereby that a 10 percent dollar depreciation represents a transfer of around 5.9 percent of US GDP from the rest of the world to the US; and (iii) the weaponization of the dollar by imposing sanctions; or the increasing use of the policy to achieve foreign policy aims through economic sanctions. On 25th April this year, the US Congress passed a law titled ‘Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act’, allowing the US to confiscate Russian sovereign assets under US jurisdiction to support Ukraine’s war effort – a move that no doubt strengthened Russia’s resolve towards de-dollarisation.
The bulk of the Russia’s sovereign assets were held in Europe, who shied away from appropriating these assets, but agreed under US pressure, to appropriate the interest due on these assets and advance that as a loan to Ukraine.
There is also increasing evidence that a BRICS corridor has been formed that allows China, with its fast growing economy likely to overtake the US economy in another decade or so, access to Iranian oil, another sanctioned country.
It is obvious that Trump needs to understand and accept the fact that the foreign policy of the Middle Eastern allies has changed dramatically since four years ago with the ongoing Israeli genocide in Gaza, the balance of military might no longer giving Israel escalation dominance (reflected by its failure to declare a conclusive victory) and the Chinese brokered truce between Saudi Arabia and Iran, which reportedly led to Saudi Arabia refusing to allow use of their airspace by Israel to attack Iran.
Sanctions or using air power to bomb any sovereign nation to oblivion is no longer a serious threat as traditional rivals have developed mitigating strategies to counter these threats.
Copyright Business Recorder, 2024
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