Photo courtesy of the U.S. Mission to Guinea-Bissau.
Xi Jinping wants to bypass the U.S. dollar in international trade, but President Trump doesn’t want him to—and Trump will get his way.
Xi’s first choice is for the world to adopt the Chinese yuan as a trade and reserve currency. Although officially recognized as an international currency and included in the International Monetary Fund’s (IMF) Special Drawing Rights basket, the yuan has failed to gain widespread adoption for trade or as a reserve currency. This is true even among BRICS partners and heavily indebted countries like Cambodia.
Currently, the yuan accounts for only 2.3% of global foreign currency reserves and 3% of all trade settlements. Many articles feature headlines suggesting that the yuan accounts for 26% of global trade. However, this figure actually refers to Chinese trade, not global trade. A significant portion of this trade is with Russia, a country barred from using U.S. dollars. Another widely cited statistic is that the yuan makes up 4.74% of “global transactions,” but this figure does not reflect trade settlement exclusively. Instead, it represents a mix of various uses, not just trade. Overall, the yuan’s role in global trade remains modest, primarily limited to transactions between Russia and China.
As an alternative to bypassing the dollar, Xi Jinping and other BRICS leaders have floated the idea of creating a BRICS currency. However, this would be nearly impossible to achieve. BRICS, which originally included Brazil, Russia, India, China, and South Africa, has recently expanded to include Iran, Saudi Arabia, the UAE, Ethiopia, and Egypt. The challenge lies in the differing priorities among member states.
Not all BRICS leaders are eager to move away from the dollar. For example, the UAE and Saudi Arabia peg their currencies to the dollar and hold significant reserves in dollars. A collapse of the dollar would severely harm their economies. Even China maintains a partial peg to the dollar—approximately 90%—and would not want to see the dollar collapse entirely.
Another major obstacle is the reluctance of BRICS countries to give up their sovereign currencies. While Xi is keen to see the yuan surpass the dollar as the dominant global currency, even he is cautious. Meanwhile, Vladimir Putin refuses to abandon the beleaguered ruble, despite its current historic lows—levels not seen since the aftermath of Russia’s invasion of Ukraine.
The divergent interests and economic dependencies within BRICS make the creation of a unified currency a highly improbable endeavor. Adding to this challenge is the fact that most BRICS currencies, apart from those of the UAE and Saudi Arabia, are extremely weak and non-convertible. The yuan, for example, has steadily depreciated against the dollar since the beginning of Trump’s first administration and remains only partially convertible.
There is no practical or rational way to combine these nine currencies into a single viable currency that would gain acceptance outside the BRICS bloc. Even within the group, member states do not currently hold each other’s currencies in reserves. A combined currency would likely hold little appeal, even among BRICS members, let alone on the global stage.
Global media outlets have extensively reported on the reasons Xi Jinping and Vladimir Putin seek to undermine the dominance of the U.S. dollar. Both China and Russia view BRICS as an avenue to strengthen alliances and challenge U.S. global leadership, with Russia holding the rotating chairmanship in 2023. Leaders such as Putin and Xi have framed BRICS as representing a “global majority” against Western hegemony. However, while their motivations are clear, their method for achieving this goal is far less so.
Neither the yuan nor a synthetic BRICS currency appears capable of fulfilling this ambition. Currently, the countries rely on currency swaps, but swaps are inherently cumbersome. Each of the nine BRICS members would need to make significant deposits in the central banks of their trade partners, requiring eight separate deposits per member. Managing and administering such an arrangement is not only logistically challenging but also requires prepaying and locking up substantial amounts of currency before any transactions can occur.
Moreover, it would be impossible to arrange swaps equivalent to the total volume of trade with China. Given the weakness of BRICS currencies, such an arrangement exposes members to significant exchange rate risks. For instance, anyone holding rubles purchased in June would have lost about 30% of their money this week when the ruble crashed. The problem extends further; no sane country would be willing to hold weaker currencies like Ethiopia’s. This creates an impractical system that undermines the feasibility of using swaps as a viable alternative to the dollar.
The final death knell for the BRICS currency pipedream came this week when President Trump announced plans to impose 100% tariffs on BRICS member countries if they dare to create a new currency to challenge the U.S. dollar. He didn’t need to do this—BRICS currency was already an impossible fantasy. But now, when BRICS inevitably fails to create their own currency, it will look like they failed because of Trump, leaving Xi Jinping humiliated. Trump spoke, and Xi blinked. It’s refreshing to finally have a President who puts America first and forces China to back down. And he did all this before even stepping into office. The next four years will be a living nightmare for Xi.
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