On November 30, 2024, US President-elect Donald Trump issued a bold statement targeting BRICS nations. Trump threatened 100% tariffs on BRICS members if they created a new currency to undermine the US dollar. He demanded assurances that these countries would not support any currency challenging the dollar’s dominance.
The BRICS bloc includes nine nations: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the UAE. Trump’s warning has raised global concerns, with experts analyzing its potential impacts on world economies.
Experts Dismiss Immediate Dollar Threat
Currency experts largely dismissed the possibility of BRICS replacing the dollar soon. Faisal Mamsa, CEO of Tresmark Investment, explained that no concrete evidence supports BRICS creating a viable alternative currency. Such an initiative requires extensive cooperation, which BRICS nations have not yet demonstrated.
Many analysts view Trump’s statement as a political maneuver. They argue it serves to justify imposing trade tariffs rather than address any immediate economic challenge.
Pakistan’s Economic Vulnerabilities
Pakistan does not belong to the BRICS bloc but remains vulnerable to the fallout of these tensions. The US remains Pakistan’s largest export market, accounting for 20% of its exports. In fiscal year 2024, Pakistan exported $5.9 billion worth of goods to the US, while its imports stood at $1.87 billion.
A senior banker highlighted two key risks for Pakistan. Fluctuations in the dollar’s value and US trade policies could exacerbate Pakistan’s economic struggles. Pakistan’s reliance on the US as a major trade partner intensifies its exposure to these risks.
Rupee Stability in 2024
In 2024, the rupee-dollar exchange rate showed relative stability compared to previous years. The rupee started the year at Rs281.70 per dollar, dropped to Rs275.86 in January, and averaged Rs278.33 by year-end.
This contrasts sharply with 2023, when the rupee faced extreme volatility. The dollar peaked at Rs306 in the interbank market and Rs340 in the open market. Businesses struggled with uncertainty, and the economy experienced accelerating dollarization.
Exchange Companies Association Secretary General Zafar Paracha credited the 2024 stability to State Bank interventions. He noted that consistent exchange rates helped exporters and importers operate with greater confidence.
Risks of Parallel Currency Markets
In 2023, illegal currency systems like Hundi and Hawala thrived, offering premiums of Rs30-35 per dollar. These practices worsened the currency crisis and undermined official channels.
Although 2024 saw fewer parallel market activities, experts warned against complacency. Stronger financial regulations are crucial to prevent a resurgence of illegal currency trade in the future.
Trump’s Protectionist Policies
Donald Trump’s economic policies have shifted toward protectionism. His focus on reducing trade deficits could impact countries like Pakistan, which have a trade imbalance with the US.
S.S. Iqbal, an expert on international trade, emphasized the need for Pakistan to diversify its export markets. Strengthening trade partnerships with countries outside the US sphere of influence can help mitigate risks.
As geopolitical tensions rise, Pakistan must adopt proactive measures to safeguard its economy. Policymakers must prioritize fiscal discipline, enhance export diversification, and improve financial regulations.
Reducing reliance on the US market and strengthening regional trade partnerships could shield Pakistan from potential economic shocks. Policymakers must prepare for changes in global trade dynamics to protect Pakistan’s economic interests.
Trump’s warning to BRICS nations underscores rising global economic uncertainties. For Pakistan, this situation highlights the need for economic reforms and diversification. By addressing its vulnerabilities, Pakistan can navigate these challenges and build a more resilient economy.
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