Trump Fires Early Warning Shot at Dollar’s Would-Be Challengers

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(Bloomberg) — Donald Trump jumped straight into action as a defender of the dollar’s strength, firing some heavy fire at a barely existing enemy.

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The president-elect’s recent attacks against the BRICs group of emerging economies were a signal that he will move aggressively to protect the US currency’s position as the world’s number one currency. Trump said that any country that abandoned it could forget about selling anything to the United States and find another “idiot” to trade with.

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Many analysts say this aggressive approach is more likely to spur alternative solutions to the dollar system – which has made little progress so far – rather than eliminate them. Trump himself realizes that currency control is not in imminent danger, according to people familiar with his thinking.

They said the speech was intended to send a broader message: It is Trump’s way of bucking the pattern of new American leaders who appear poised to preside over the gradual decline of American power.

Anna Kelly, a spokeswoman for Trump’s transition team, declined to comment beyond the president-elect’s Truth Social post.

It will likely fall to Scott Besant to figure out how to translate sentiment into actual dollar policy. Trump’s choice for Treasury secretary—announced in a press release that cited the need to preserve the dollar’s reserve status—shows how seriously he takes the issue. Besant has spent the past year studying historic currency agreements, giving speeches about how the dollar fits into the “great global economic restoration” he says is needed.

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All this talk represents a clear shift from the outgoing administration. When it comes to the dollar, President Joe Biden and Treasury Secretary Janet Yellen have mostly chosen to stress how unconcerned they are. When asked a year ago about the trend among other countries toward diversification away from the US currency, Yellen said it was “something we simply have to expect.”

Those close to him say that Trump, by contrast, has decided that he does not want to be the president in charge if the historical moment comes when a country abandons the dollar.

As usual with Trump, the nuances are someone else’s problem.

“Farewell wave”

The US dollar has been the anchor of global trade – and the envy of partners and competitors alike – for eight decades. The world’s thirst for dollars has made it cheaper for Washington to finance a pile of government debt that has reached $28 trillion — and for millions of Americans to take out mortgages, or borrow cash to buy cars and pay college fees.

The dollar’s rule has become deeply entrenched, due in part to the enormous size of the US economy and its continued willingness to run huge trade deficits, absorb global goods and pump out dollars in return. It will likely take years to change this.

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However, getting a bloc of countries – Brazil, Russia, India, China and South Africa, for example, known as the original BRICS – to work together over time will be a challenge.

Moreover, they may want to. After a decade when America increasingly relied on punitive economic sanctions and tariffs to achieve its policy goals, large segments of the world began to wonder whether they were overly exposed to the dollar.

This is what Trump has his eye on. About a week ago, the president-elect released a message on social media.

“The idea of ​​the BRICS countries trying to move away from the dollar while we stand by is over,” he declared, threatening to impose a 100% tariff in response, sending emerging market currencies falling to their lowest level in two weeks. “Any country trying to wave goodbye to America.”

“Really confusing”

The goal is to talk among the BRICS countries about developing trade channels that would reduce dependence on the dollar, and thus exposure to US sanctions. Russia – which has been under heavy sanctions since its invasion of Ukraine in 2022 – has taken the lead. In October, Moscow promoted the idea of ​​creating direct links between the central banks of the BRICS countries, or commercial lenders, to enable more cross-border payments in local currencies.

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There was interest in the idea, including from some oil-producing countries. But there is little sign of a coherent plan, let alone a new competing currency. Even some participants downplay the challenge to the dollar: Indian Prime Minister Narendra Modi has made clear that the BRICS project should not be seen as anti-Western. As for China, which has made no secret of its desire for the yuan to become a competitor to the dollar, it has just issued sovereign bonds denominated in the US currency – and it has been flooded with bids.

“The BRICS currency proposal ranks so low on the financial market risk horizon and probability scale that Trump’s threat of 100% tariffs has really confused many,” said Selina Ling, chief economist at Oversea-Chinese Banking Corp. Ltd. in Singapore.

If some were surprised by Trump’s choice of such a niche topic for “The Truth” on Friday afternoon, others are wary of his weapon of choice.

Tariffs can backfire. The dollar has become the world’s favorite asset due to the attractiveness of its use. If countries were forced to do so, it could provoke the kind of geopolitical volatility that prompts a search for alternatives.

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“The idea of ​​using political coercion to compel countries, or compel market actors within countries, to use currency is not how the dollar got to this place in the first place,” said Daniel McDowell, a professor at Syracuse University and Syracuse University. Author of “Sacrificing Money: US Financial Sanctions and the International Backlash Against the Dollar.”

“If this is what is required to maintain dollar dominance, it shows there is a real fundamental problem with economic attractiveness,” he said.

Such fine details are not in Trump’s favor. What he cares about, say people familiar with his thinking, is making sure Americans continue to enjoy the benefits of a strong dollar. In his view, wielding the tariff stick gets results – as when Canadian Prime Minister Justin Trudeau flew to Mar-a-Lago three days after Trump issued a separate threat – and alerts the world that the next US president is watching the US currency.

“All that is needed”

Another dilemma Trump faces is that while he wants a global dollar, he does not want a strong dollar that prevents American exporters from accessing global markets. Most economists believe that imposing tariffs, whether on dollar defectors or uncooperative trading partners, would strengthen the US currency. The US currency actually gained 2 percentage points against its global counterparts in the month following Trump’s election victory.

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Besant, if confirmed as Chancellor of the Exchequer, will be tasked with threading all these needles. The hedge fund executive has long been a student and participant of major shifts in global currency markets.

Besant was 29, working for George Soros, when his research contributed to the $10 billion bet that ultimately helped collapse the Bank of England and sink the British pound. Once the possibility of him becoming Trump’s Treasury secretary this year became apparent, he began reading the works of Japanese numismatic expert Yoichi Funabashi, who has written extensively about how the 1980s currency agreements called the Plaza and Louvre agreements combined.

While the dollar is key to much of what Trump seeks to achieve, from trade to American leadership in the world, Pisant hinted that the real issues lie deeper than that.

“We must be mindful of the limits of currency adjustments” as a tool for making major structural changes, such as shifting the terms of global trade in America’s favor, he said in an October speech.

A Bessent spokesman declined to provide details of his views on currency policy.

For many market watchers, the best way for Trump and Picent to maintain the dollar’s dominant status is to avoid anything that might destroy its enduring and deep-rooted appeal.

“The depth and liquidity provided by US financial assets makes them enduringly attractive to global investors,” said Timur Baig, chief economist at DBS Group Holdings in Singapore. “All that is needed is political and regulatory stability.”

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