US DOLLAR RESERVES HELD AROUND THE WORLD
So, which Trump policies could hasten the end of US dollar dominance? The incoming president is regarded as pro-business, which will probably translate into policies aimed at lowering regulation and taxes. Stimulating domestic growth will lead to an even stronger US dollar at a time when global output is more modest.
A stronger US dollar, as mentioned above, also increases the price of oil and similar commodities. Countries will inevitably ask themselves why oil from Saudi Arabia, for example, should be paid for in US dollars as those dollars become more expensive.
Trump’s economic policies are likely to increase US debt, and this can reduce the value of the large US dollar reserves held around the world. According to one study, Trump’s plans could add as much as US$15 trillion to the nation’s debt over a decade. A fall in the value of US dollar reserves may result in some countries being less willing to hold US debt.
The effect of these policies might be considered unintentional. But other policies, such as Trump’s plan for higher tariffs, are more deliberately designed.
A strong US dollar damages US exports, as they become relatively expensive in local currency terms, and makes imports relatively cheap. Tariffs are a way to protect domestic producers from this international competition.
However, assuming no other country retaliates, raising tariffs will serve only to further strengthen the US dollar, as fewer imports will mean less US dollars being sold in the foreign exchange market. This will, at least in part, undo the effect of the tariff policy while imposing trade costs globally.
To avoid elements of this, countries could agree to use alternatives as a reserve currency and a means to pay for international commodities. The BRICS nations have mooted a separate currency, which could revolve around one or more existing currencies like the Euro or yuan. Trump’s threats may simply speed up this search for an alternative.
