“We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
Skipping for the moment the Trumpian leap from the “worst” to the “wonderful” US economy in the few weeks since the election (and he’s not even president yet), could someone please explain how it benefits the US to have the dollar as the most-used currency in global trading?
How would Brazil, Russia, China, India, etc., create a new BRICS currency?
As for a 100% tariff, I start gasping like an escapee from a goldfish bowl when I think about the ramifications. Or is this economic sword-rattling?
This is not a thing. It was an idea floated by Lula in Brazil and immediately shot down by India and others. China and Russia are certainly interested in de-dollarization, for what that is worth.
These are not trends that can be stopped by tariffs. BRICS GDP is $28T. US GDP is roughly the same (slightly smaller, actually). As BRICS counties grow, if the US economy stagnates or falls it will be surpassed.
A 100% tariff on Chinese goods is just self-immolation. It will not, and cannot, happen.
I’m guessing (hoping) this. Trump wants some concessions.
But, this is Trump so who knows? I believe he’d happily go there if he feels snubbed (which is all too easy to do).
Can Trump advisors restrain him? I am thinking no this time around. Trump was restrained in his first term and it frustrated him. I think he means to not have that happen this time.
I’m counting on Trump’s laziness and mental degradation to “restrain” him. He’s threatened them over something they were never going to do in the first place, so when it doesn’t happen, he’ll proclaim victory and brag that he saved us from higher prices.
How does any country create any currency? They pass a law, declare it legal tender for all debts public and private, and that gives it value. How much value is a legitimate question, of course, but it will have some value.
The US got very stroppy with a couple of Middle East countries who started to sell oil in EUR rather than USD.
The status of the USD as the global reserve currency is a BIG deal.
It hasn’t always been the case, the position usually is assumed by the dominant (western) economy so since WWII and Bretton Woods it’s been the USD.
The big advantage for the US is that essentially all the US external debt is denominated in USD. And so, when the US needs to pay a US denominated debt, they can fork over any available readies or simply print more USD. This of course requires the extension of the Debt Ceiling and is a significant risk of inflation. No other country has this option. We incur a USD debt, we have to make that debt good by selling stuff for USD.
Were the PT Global Trading Corp wanting to buy a substantial quantity of say Mexican widgets the transaction would be denominated in USD. PT Co would need to go to the finance markets and sell AUD to buy USD to pay the Mexican supplier. The USD funds would be transmitted to the supplier who would need to sell the USD to get the Pesos they need. Each transaction has a margin. Each transaction has a cross exchange rate to the USD. If, due to a poor credit status, financiers consider the AUD less attractive then PT Co needs to pay a sufficient premium to make the transaction attractive or find some other mechanism or third party to obtain the USD. All of which adds further expense to the transaction.
The US currently doesn’t need to worry about this because both sides of the deal are in domestic currency.
But if BICS or OPEC start selling oil in EUROs or other currency or some currency hybrid the US will need to buy that currency to pay for the transaction. Which makes it more expensive for the US to buy the oil, will put downward pressure on the exchange rate (making the price even more expensive) and the weight of trade may shift so that global trade is conducted in some sort of USD/EUR/RMB/JPY/BICS hybrid currency. Hence the bullyboy strongarm tactics.
If the USD was not the reserve currency, should the US be considered to have run up an unsustainable debt (or be on that path then the creditors/financiers would step in. (You might recall instances of the IMF or World Bank offering credit to economically stress countries on the condition that stringent fiscal or monetary policies were put in place.) Which is a bit like the relationship you might have with your overdraft and bank.
For the US to lose reserve currency status in the long term would IMHO be a good thing. The US might be a bit less inclined to lump tariffs and other sanctions on the countries who financed the US purse strings. But in the short term it would be rather traumatic for the US.
Which suits Trumps purposes to a tee. Now he can claim that they were just about to do it, until he stepped in and they all ran away like frighted school girls in awe of his awesome negotiating skills.
How is this supposed to scare us (South Africa), or Brazil, when most of our exports are commodities? Completely fungible and with plenty of willing buyers. And where our biggest export partner is in both cases China, and the US makes up only like 7% of our export market (and a much smaller percentage for Brazil)? If US companies drop us because of the tariffs (which, after all, they pay) we’ll shrug and send our ores or soy oil or meat to China or the EU or any other entity happy to pay their asking FOB price.
I can see this having more of an effect on manufactured goods suppliers like China, but China’s a big boy and can look after itself in any trade war the US might start.
I think he means “should expect to say goodbye to the wonderful U.S. Economy”. Because boy howdy, would a 100% tariff on China bite hard. Not that he’s going to do it.
And I very much doubt BRICS will create a new currency (unless this is a plan by Putin to get around sanctions on the ruble). I’d expect them to back another currency - maybe euros (but again Putin might object), maybe the Swiss franc, maybe the yuan…who knows.
No. Japan’s foreign debt is almost exclusively in USD-denominated debt.
I’ve been looking for figures on other economies. There is a wealth (heh!) of published data in great detail and specificity available from the various central banks but my googlefu has failed to find a “simple” table.
YMMV but methinks it’s a very big deal.
I’m working for the local distribution arm of a major Japanese consumer electronics company. We purchase exclusively inhouse from their factories in SEA, NEA and Europe. All stock is purchased in USD. All international freight is denominated in USD.
[quote=“Gyrate, post:12, topic:1011053”]
And I very much doubt BRICS will create a new currency (unless this is a plan by Putin to get around sanctions on the ruble). I’d expect them to back another currency - maybe euros (but again Putin might object), maybe the Swiss franc, maybe the yuan…who knows.[/quote]
Putin has very little power in BRICS, China would be the one calling the shots if a new currency was created.
Ray Dalio discusses this at some length in one of his books. But basically, Trump wants to look tough, make the papers, do nothing in practice.
Really don’t mind if you sit this one out
My words but a whisper, your deafness a shout
I may make you feel, but I can’t make you think
Your sperm’s in the gutter, your love’s in the sink
So you ride yourselves over the fields
And you make all your animal deals
And your wise men don’t know how it feels
To be thick as the BRICs
I understand your point, but I’m not sure how aware most Americans are of the tull that a shift in reserve currency could take on economies of the world.
