KUALA LUMPUR, Malaysia, Jan 6 (IPS) – While US President Donald Trump has blamed the BRICS and foreign investors for de-dollarization, his rhetoric, actions and policies are mainly responsible for the recent acceleration of the trend.
Threats and responses
While Trump is not the sole cause of de-dollarization, which began much earlier, long before he became president, his recent initiatives have accelerated the trend.
Despite some temporary reversals, the dollar’s role as a world reserve currency after World War II has gradually declined in recent decades, especially since the 1970s. Ben Norton has argued that several of Trump’s actions have accelerated this trend.
Trump claims that his so-called “reciprocal tariffs” will reduce the US trade or current account deficit with the rest of the world. But if countries can’t export to the US, they can’t earn dollars to meet their trade and investment needs.
Many believe that Trump’s tariffs and other threats increase U.S. influence over others, but their responses, including defensive countermeasures, are accelerating de-dollarization.
Trump’s actions, such as his insistence on bilateral negotiations, have alarmed most countries, including longtime allies. As countries, including allies, reconsider their economic relationships with and vulnerability to the US, de-dollarization is inadvertently accelerating.
Trump vs. the Fed
Interest rates on overnight loans or U.S. Federal Reserve Bank funds have been higher since 2022, in response to higher consumer price inflation following the pandemic and Russia’s invasion of Ukraine.
When the Fed raised rates, U.S. Treasury yields rose. But Trump now wants the Fed to cut interest rates to reduce the high debt burdens of both the government and private companies.
By 2024, the US federal government alone was paying about 3% of GDP in interest on debt. Although these debts exceed 120% of GDP, debt service costs are considered manageable as long as interest rates remain low.
Trump’s pressure on the Fed to cut rates has inadvertently undermined investor confidence and led to ‘flights’. [from dollar assets] to safety’.
Trump’s recent campaign against his former Fed chairman, Jerome Powell, was unintentional raised concerns among investors about his espoused monetary policy priorities.
Fears of inflation persist
Investors are now concerned that Trump is putting pressure on the Fed to cut rates. They believe this will fuel inflation and cause the dollar to fall against other major currencies. Now that Trump is cutting interest rates, he risks being blamed for persistent inflation.
If the Fed buys US Treasuries to lower interest rates, investments in dollar assets under a new round of ‘quantitative easing’ (QE) will yield lower, if not negative, real returns.
While inflation hawks’ worst fears of higher inflation have not materialized so far, few believe that rates will not increase inflation.
Anticipating that Trump 2.0 would impose more tariffs, many US companies stockpiled imports before April 2. When tariffs took effect and inventories fell, prices rose.
Many investors have sold their dollar assets as monetary authorities worldwide look for alternatives to the dollar. Such selloffs lower the value of the dollar, further encouraging de-dollarization.
Trump now wants to cut U.S. Treasury yields as foreign governments and investors seek alternatives to holding dollar assets.
Many are considering switching to non-dollar assets despite stagnation trends elsewhere in the Global North, especially in Europe and Japan. If investors stop buying dollar assets or sell them to buy non-dollar assets, dedollarization will gain momentum.
Foreign demand is falling
Washington is understandably concerned that foreign investors will dump government bonds. In 2015, a third was owned by foreigners, but this has now fallen to less than a quarter.
The proposed Mar-A-Lago agreement, which requires foreign governments to hold U.S. Treasury bonds for 100 years despite insured losses, will increase resentment.
Lowering Treasury yields is both risky and difficult because of the highly financialized U.S. economy. Past bond market turmoil has led to stock market sell-offs, driving down government bond yields, stock prices and tax revenues.
The borrowing costs of governments and companies are rising together. As trillions of dollars of corporate bonds mature over the next two years, high interest rates will increase corporate borrowing costs. Many want to refinance at a lower interest rate.
These attempts to lower interest rates are clear to everyone. But lower interest rates and negative ‘real yields’ for government bonds will ensure that high inflation continues.
Is de-dollarization accelerating?
Trump’s actions, especially the threats of tariffs and sanctions, have provoked varied responses, often undermining the dollar’s hegemony and accelerating de-dollarization.
Many recent developments have undermined public confidence in the US government and the rule of law, accelerating de-dollarization.
As investors sold U.S. assets in mid-2025, the dollar saw its biggest decline since the oil price surge of 1973. It fell by more than 10% against other major currencies, leading to temporary declines in many financial assets, including stocks and bonds.
Since then, uncertainty and volatility have increased in the capital markets, as in the US bond market, although there was a strong rally following the subsequent stock market crash.
In many recent periods of financial volatility, dollar liquidity has been considered the safe option. But in 2025, confidence in dollar assets declined, leading to a sell-off and de-dollarization.
So far, Trump has been adept at managing short-term volatility, but his style implies that no one knows when the music will stop.
IPS UN Office
© Inter Press Service (20260106081349) — All rights reserved. Original source: Inter Press Service
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