Recently, US President Donald Trump made
a strong statement, threatening to impose a 10% tariff on
BRICS+ nations that trade in currencies other than the US dollar. He also
suggested a 500% penalty for any country doing business
with Russia. India is also a member of this group. While
threatening, US President Trump did not consider that America's own
geopolitical situations and tariffs threats forcing other countries to
trade in local currencies.
This change hasn’t happened overnight—it’s a result of multiple factors,
many of which are directly tied to US trade actions and foreign policies.
What Sparked this
Shift
While these threats might appear to be a way of protecting US interests,
many experts believe they are doing just the opposite. According to a report
from the Global Trade Research Initiative (GTRI), such tough actions
are actually pushing other countries to stop using the dollar in
international trade. As a result, a growing number of countries choosing
to settle their trades in local currencies rather than relying on the US
Dollar.
How US Sanctions
Backfired
Over the years, the United States has placed strict sanctions on
countries like Russia, Iran, and Venezuela.
These sanctions not only limited trade opportunities but also cut these
countries off from the SWIFT payment system.
What is SWIFT?
SWIFT is a secure messaging system used by banks to
settle international payments. Think of it as the banking version of an
international phone code—it connects financial institutions around the world to
process money transfers.
When countries are banned from using SWIFT,
they lose access to the global banking network, making it almost impossible to
do business using dollars. As a result, they start exploring other
options—such as using their own currencies or forming
agreements with trade partners to use alternative payment systems.
The Roll of Local
Currency Trade
Countries like India and China have
already taken concrete steps in this direction. For example:
India now pays for Russian oil using rupees or
sometimes in UAE Dirhams.
China and Russia regularly conduct transactions
in Yuan and Ruble, completely bypassing the
dollar.
Even Saudi Arabia, which has
traditionally sold oil in dollars under the "petrodollar" system, is
now showing interest in accepting other currencies for oil
sales.
This growing movement toward local currency
trade is being driven by both political pressures and economic
advantages.
Why Local Currency
trade makes Sense?
There are several benefits when two countries trade
using their own currencies:
Lower Transaction Costs: Experts say
that local currency trade can cut costs by up to 4%.
More Control: Countries
don't have to depend on US monetary policies or the dollar's value.
Reduced Risk from Sanctions: If the US
decides to impose sanctions, local currency trade helps avoid disruptions.
Faster Settlements: Payments
happen quicker and with fewer hurdles.
Because of these benefits, more and more countries
are willing to move away from the dollar, even if it means facing
short-term complications.
Bricks Expansion: A
Major Push
The BRICS alliance has now expanded into what many
are calling BRICS+, adding powerful oil producers and large
emerging markets like:
Saudi Arabia
Iran
United Arab Emirates
Egypt
Ethiopia
Indonesia
This expanded group represents a significant
share of global trade and population, giving it enough weight to challenge
the dominance of the US dollar.
For instance:
The UAE and India have already signed trade
agreements allowing settlement in Rupee and Dirham.
Russia and China are building strong financial
partnerships in local currencies.
Iran is eager to trade with friendly nations using
non-dollar channels to avoid sanctions.
All these efforts are creating a parallel trade
system where the dollar is no longer essential.
Is The Dollar
Loosing Its Power?
The US dollar has been the world’s leading trade
and reserve currency for decades. However, several actions taken by the US government
in recent years are making countries less willing to depend on it.
Key issues include:
Sudden policy changes that make
trade uncertain.
Frequent use of sanctions to push
political agendas.
High tariffs, like those
threatened by Trump, which discourage free trade.
As a result, nations are losing confidence in
the dollar and searching for more reliable and affordable ways
to trade.
A New Era of Global
Trade
What we are witnessing now is the beginning of
a new phase in global commerce. As more countries realize the advantages
of local currency transactions, the dominance of the dollar could slowly
start to fade.
Here’s what the
future may look like:
More bilateral trade deals using local
currencies.
Greater use of non-dollar payment
systems.
New financial alliances led by BRICS+
nations.
Decreased global dependence on US
economic policies.
For businesses and investors, this transition could
bring both challenges and opportunities. Adapting to currency
volatility, new rules, and financial systems will be key to success in this
evolving environment.
Final Thoughts
America’s attempt to control global trade through
tariffs and sanctions is having the opposite effect. Rather than strengthening
the dollar’s role, it is encouraging countries to develop alternatives.
The BRICS+ nations are now leading the way in
building a more diverse and decentralized trade system, where
no single country can dominate global finance. While the US dollar won’t
disappear overnight, its status as the world’s default trade currency is now
being seriously questioned.
In the years ahead, we’re likely to see more countries choosing local currencies for trade not out of politics, but because it makes economic sense.
