The aggressive policies of Donald Trump are putting the sovereignty of the US dollar at risk, to the point of fueling the risks of a de-dollarization.
First with the 25% tariffs on Canada and Mexico and now with the threats to the BRICS member countries, the new USA President is creating a climate of tension that is not very reassuring for the American economy.
How does all this impact the financial markets, and in particular the cryptocurrency market?
Let’s see all the details below.
Trump pressures BRICS countries not to move away from the US dollar
Trump has exerted pressure on the countries of the BRICS (Brazil, Russia, India, China, and South Africa) to continue using the US dollar in their international transactions. However, this rigid approach has led to diplomatic tensions and has pushed some of these countries to seek alternatives to the dollar, increasing the risk of a de-dollarization.
In particular, Trump has threatened the members of the BRICS with applying 100% trade tariffs on foreign products if they attempt to replace the dollar with another fiat currency.
The President of the United States has thus thrown down the gauntlet to the rival world superpowers, declaring the following in a recent interview:
“The idea that the BRICS countries are trying to move away from the dollar, while we stand by and watch, is OVER.”.
The threat of economic sanctions and the use of the dollar as a tool of political pressure does not seem, however, to have frightened the BRICS countries.
These, despite Trump’s harsh tone, have begun to consider adopting other currencies, such as the euro, the Chinese yuan, or the CBDC to reduce their dependence on the United States.
This approach could lead to a growing decrease in the demand for dollars and a weakening of the role of the dollar as a global reserve currency.
The impact of tariffs on Canada and Mexico: possible increase in inflation
Trump’s protectionist policies have also affected the United States’ trading partners, such as Canada and Mexico.
Recently, in fact, the Tycoon announced tariffs of 25% on goods imported from the two neighbors, contributing to further complicate the current macro-economic picture.
The increase in tariffs has led to a rise in the prices of goods imported from these countries, creating a possible vortex of inflation for the US dollar.
This situation has undeniably created greater volatility in the financial markets, with investors trying to adapt to the new global economic balances.
Especially in the more speculative markets, investors have been frightened by how the danger of inflation could affect the interest rate policies of the FED, moving away from the goal of quantitative easing.
This means that, with the higher cost of money, savers would be more incentivized to deposit liquidity in bond products rather than in risky markets like the stock market or cryptocurrencies.
Furthermore, there is the consideration of how trade tensions with Canada and Mexico have complicated diplomatic relations, leading to greater economic uncertainty.
American businesses that rely on imports of raw materials and components from neighboring countries have faced higher costs and delays in supplies, negatively affecting their competitiveness in the global market.
All this also has negative effects on the GDP of the United States, which could potentially experience a slowdown from the growth trajectories recorded in recent years.
Will Trump’s policies lead to de-dollarization?
Trump’s tariff policies and his threats towards BRICS countries could likely lead to a phase of de-dollarization.
In a context like this, more and more countries would choose to use other currencies for their international transactions.
This could have significant consequences for the global economy, reducing the demand for dollars and weakening the role of the dollar as the world’s reserve currency. De-dollarization would also impact greater volatility in financial markets, as investors would seek alternatives to the dollar to protect their assets.
Furthermore, the decrease in the demand for dollars would be reflected in an increase in interest rates in the United States, making the financing of public and private debt more expensive.
There would also be diverse geopolitical implications, with a greater competition among the main world economies to establish new alliances and economic influences. Countries adopting alternative currencies might seek to create new economic and financial blocks to reduce the influence of the United States and the dollar in the global economy, leading to a redefinition of international economic and geopolitical balances.
We are talking about very complex scenarios, which should nevertheless be contextualized with the next moves planned by Trump on this front.
We will see how the new president will react in the coming weeks to this well-established risk of de-dollarization.
Trump: the consequences of de-dollarization on the crypto market
De-dollarization could have a significant impact not only on traditional stock exchanges but also on the cryptocurrency market.
In the first instance, we can state that, with the decrease in confidence in the dollar, more and more investors might seek refuge in cryptocurrencies like Bitcoin and Ethereum. This could lead to an increase in demand and prices of cryptocurrencies, making them an increasingly attractive alternative to traditional currencies.
Furthermore, de-dollarization could push governments and financial institutions to consider adopting cryptocurrencies as part of their monetary reserves, further increasing their legitimacy and spread.
In any case, it should be noted how de-dollarization would also affect the monetary dynamics of the FED, creating less positive traction for risky assets like crypto.
Already in these first days after the announcement of Trump’s tariffs, the more speculative financial markets are losing several percentage points, in the wake of the potential negative effects of the US protectionist policies.
Furthermore, another possible negative effect of de-dollarization on the cryptocurrency market could be the fragmentation of the global financial system. With the decrease in the role of the dollar, new dominant currencies could emerge, creating a more complex and less uniform economic environment.
This fragmentation could complicate international transactions and increase currency conversion costs, penalizing cryptocurrency users who operate globally.
Investors and financial institutions will consequently have to adapt to a rapidly evolving and constantly changing economic environment, contributing negatively to macroeconomic uncertainty.