Donald Trump’s ‘America-first’ policy could end the dollar’s dominance

Donald Trump’s victory in November’s US presidential election saw the US dollar strengthen. It surged to a one-year high within two weeks, and has since retained its strength against its major peers. His election has also again brought the prospect of US tariffs on imports, and attention has focused on the disruption to global trade that these may bring.

As part of this, Trump made a not-so-veiled threat of steep levies on the Brics group of leading emerging markets should they create a rival to the US dollar, which has been the world’s “dominant currency” since the second world war.

The use and holding of the US dollar by other countries is known as dollarisation. It has different levels of meaning, from countries like Panama using the US dollar as their currency, to its use in the pricing of major internationally traded commodities, and as a reserve and vehicle currency. This latter role enhances global trade.

Take Chile and Malaysia as an example. Any trade between these two countries will involve the exchange of Chilean pesos for Malaysian ringgit, for which there is not a large and active market. So, pesos are instead exchanged for US dollars and US dollars for ringgit, allowing trade to occur in a quicker and more cost-efficient manner.

Indeed, the US dollar is used...

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