Trump warns BRICS about Petro-Yuan and Digital Currency talks... "Don't look for alternatives"

Dollar's weight in global foreign exchange trade is 88%

Countries are reducing their foreign exchange reserves

Concerns about U.S. financial sanctions

Discussion on Digital Currency (CBDC) settlement system within BRICS

China advances in oil security settlement

Donald Trump, the elected president, warned the BRICS (BRCIS) economic union, which is seeking alternatives, showing strong will to maintain the hegemony of the Dollar. Although the Dollar's weight in global foreign exchange trade is not as high as 90%, the movement of countries to reduce their dependence on the Dollar is intensifying. Since the 2000s, the Dollar's weight in the foreign exchange reserves of central banks around the world has been decreasing, but the movement to de-dollarize is becoming more pronounced, centered around BRICS.

Foreign exchange reserves and Dollar weight decrease

According to sources like the International Monetary Fund (IMF), the Dollar's weight in global foreign exchange trade is about 88%. Although the Dollar's weight in the economic activities of each country remains high, other movements are being observed. This is because the central banks of the world are reducing the Dollar's weight in their foreign exchange reserves. The Dollar's weight in the foreign exchange reserves of central banks, which exceeded 70% in the 2000s, fell to 58% last year.

Such movements are due to concerns that if countries rely solely on the Dollar, exchange rate fluctuations or the U.S. economic situation could be severely affected. In fact, countries in the West, centered around the U.S., cut off the SWIFT settlement network for Russia, which invaded Ukraine in February 2022. Russia, excluded from the settlement network with an absolute high Dollar weight, had to continue looking for alternative settlement assets outside the Dollar. Russian President Vladimir Putin criticized the Dollar's misuse at the BRICS summit held in Kazakhstan in October, saying, "The Dollar is being used as a weapon." He urged participation in the construction of a settlement infrastructure that can bypass SWIFT, calling the Dollar's weaponization a major mistake.

China moves for Petro security

China, which has a long-standing relationship with the U.S., is in a similar position. Watching the situation in Russia, there are concerns that the U.S. could impose financial sanctions on China at any time. China's state-owned media reported in December 2022 that "(in the long term) let's use security in the oil and gas trade," suggesting. Last year, a $50 billion swap agreement was also concluded with Saudi Arabia. Bandar Al-Khorayef, Minister of Industry and Mineral Resources of Saudi Arabia, said in an interview with South China Morning Post (SCMP) in October, "Saudi Arabia can use security in oil settlement with China," he said.

Especially within BRICS, Russia and China are actively securing alternative assets outside the Dollar, using financial sanctions from the U.S. as an excuse. The rapid increase in gold reserves in BRICS countries is also a similar trend. The International Monetary Fund (IMF) analyzed that "when financial sanctions were imposed in the past, central banks adjusted their gold reserves to reduce the risk of sanctions," adding, "These factors could be the background for the increase in gold reserves of some emerging market central banks."

Trump, determination to maintain Dollar hegemony

Despite such movements in BRICS, the general opinion is that the Dollar's position as a hegemonic currency will not change. However, Trump's warning to BRICS countries is interpreted as an attempt to solidify the Dollar's hegemony within the U.S. without wavering in the face of 'America First'. It can also be used as a bargaining chip to gain an advantage in negotiations such as tariffs and sanctions.

Bloomberg reported that "Trump and his economic advisers are discussing ways to punish all countries, including allies and adversaries, using currencies other than the Dollar," adding, "This measure could include export controls, trade sanctions, fines for violations, and more."

News Source=Park Shin-young, Special Correspondent nyusos@hankyung.com