Trump advisers considered penalties for countries abandoning the US dollar

Economic advisers to former United States President Donald Trump have been discussing ways to actively stem the trend for some countries to stop using the U.S. dollar, people familiar with the matter said. It is an attempt to counter the increasing moves by key developing economies to reduce their reliance on the greenback.

Among the potential options in the discussions was the imposition of penalties on associates or advisers seeking effective ways to engage in bilateral trade relations that use currencies other than the dollar. This could be done through a series of measures, including export controls, currency manipulation fees and customs duties, the well-informed sources said.

Verbal backlash against the US currency’s dominant position in the global financial system has been gathering momentum since 2022 after Washington led the international push to impose heavy economic sanctions on Russia over its invasion of Ukraine. As a result, the Russian Central Bank, official representatives of the Russian government and about 2,500 other individuals and legal entities lost access to the greenback.

President Joe Biden has signed into law a measure giving him new powers to seize Russian dollar assets to help rebuild Ukraine. The so-called REPO Act, which Biden signed on April 24 along with the $95 billion aid package. dollars for Israel, Taiwan and Kiev ($61 billion of them), is the first legal act allowing the cashing of frozen Russian assets. However, their size in the United States is roughly $4-5 billion. dollars – a drop in the ocean for the reconstruction of Ukraine, estimated at $486 billion so far, or the country’s annual military spending of $100 billion.

The frozen approximately 300 billion USD Bank of Russia’s dollars are located for the most part in the European members of the G-7 (mainly in Belgium, where the European clearing system in Brussels Euroclear holds almost 192 billion dollars) and the law emphasizes the need for greater transparency in their operations on American soil and requiring financial institutions to provide information about Russian assets to the Treasury Department. The law also states that all Russian assets, including state-owned companies, are subject to confiscation, with the exception of those with diplomatic immunity. The law does not guarantee that frozen assets will be confiscated, because only President Biden can make such a decision.

These measures have raised concerns among many Republican lawmakers, who worry that they could undermine the role of the U.S. dollar in the global financial system. Brazil, Russia, India, China and South Africa – the group of countries known as BRICS – discussed the possibility of de-dollarization at a summit in August 2023. It is gaining global influence after inviting key crude producers such as Saudi Arabia and the United Arab Emirates, as well as other countries, to join it this year. The currencies of the two Gulf states are pegged to the US dollar.

Economic advisors to Trump and his campaign are discussing parrying this BRICS invitation in a possible second “round”. For his part, both publicly and privately, Trump has declared that he wants the greenback to retain its role as the world’s reserve currency. “I hate it when countries give up the dollar,” said the former US president in an interview with CNBC on March 11. And he added that he will not allow them to stop using the American currency because when the Americans lose this standard, it will be similar to losing a revolutionary war and will be a blow to the country.

During his tenure, Trump considered artificially weakening the greenback to support the nation’s manufacturing sector. However, he has now admitted in private conversations that he does not see the need for interventions, claims a person close to him. In his election campaign, Trump blames the politics of his rival Biden, which has damaged the image of the American currency. The White contender wants the dollar to remain stable and other countries to refrain from intervening and devaluing their currencies.

The greenback has been on the rise in recent months, and the prospect of the Federal Reserve refraining from cutting interest rates in the near future bodes well for this trend to continue, which will rather force officials in other countries to intervene to support their currencies, and not to devalue them.

The closest and most urgent is this process for Japan and South Korea, which periodically warn against the excessive decline of their monetary units. The Japanese yen fell to its lowest quotation for the last 34 years on April 26 after the Bank of Japan decided not to change its interest rate policy and at 10:40 a.m. Bulgarian time it was trading at 156.73 yen for one dollar.

China is also taking measures to stop the decline of the yuan.