Dollar Dominance Wanes: From Trump’s Tariffs to Fed Pressure – A Strategic Opportunity for India

Once the world’s strongest currency, the US dollar is gradually losing its shine. Recent actions by the US government, including tariffs imposed by former President Donald Trump and the Federal Reserve’s aggressive policies, have weakened the dollar’s global standing. This decline, analysts say, could present a significant opportunity for India to reduce its dependence on the greenback.

According to a Bloomberg report prepared for the New Economy Forum, emerging economies, often referred to as the Global South, are increasingly losing confidence in the dollar. Factors behind this trend include Trump-era tariffs, the rising US debt, the breakdown of long-standing agreements with Middle Eastern countries, and growing competition from China. The report notes that these developments have further eroded the dollar’s dominance.

Declining Dollar Share in Global Reserves
The US dollar was once the centerpiece of global foreign exchange reserves, accounting for over 70% in the early 2000s. Today, its share has fallen below 60%, signaling a shift in global currency preferences. Experts note that if the European Union were more stable and China’s financial system more open, the dollar’s decline could have been even steeper.

Reasons for Waning Confidence
Countries are seeking alternatives to the dollar due to several reasons. The US has imposed tariffs not only on rivals but also on allies, creating global discontent. Alleged heavy-handedness by the Federal Reserve and rising US national debt, along with the collapse of historic agreements with Middle Eastern nations, have further undermined trust in the dollar.

Opportunity for India
India, as part of the BRICS group, could benefit from a weakening dollar. BRICS nations have previously discussed conducting trade in their local currencies. A continued decline in the dollar could encourage India to trade more in rupees, reducing foreign exchange risk.

Since most global trade, including essential commodities like crude oil, is priced in dollars, a weaker greenback would make importing and exporting easier for Indian companies. Additionally, foreign investors may find the Indian stock market more attractive, potentially increasing capital inflows.

As the dollar’s dominance wanes, India stands at a pivotal moment to strengthen its economic independence and explore currency diversification strategies, both in trade and investment.