RUFARO MAFINYANI: The global currency chess game and Trump’s economic strategy

The world is experiencing what experts describe as a “tectonic shift” in global currency dynamics, accelerated by the Ukraine war and subsequent weaponisation of dollar-denominated assets through sanctions. As nations seek alternatives to the long-established dollar system, US President Donald Trump’s economic strategy emerges not as reactionary policy but as a calculated approach to preserving US dominance in this changing landscape.

Despite mainstream portrayal of Trump’s tariff policies as erratic or simplistic, deeper analysis reveals a sophisticated economic strategy rooted in power dynamics rather than conventional economic theory. Trump recognises that economic dominance is fundamentally about power relationships, not marginal productivity gains.

Trump’s worldview acknowledges a paradox: while the dollar’s reserve currency status grants the US “exorbitant privilege”, it simultaneously imposes an “exorbitant burden” on domestic manufacturing. The flood of dollars leaving the US through trade deficits returns primarily as investment in treasury bonds and real estate, hollowing out manufacturing while enriching financial elites.

His tariff strategy operates through two distinct phases. First, tariffs are imposed on trading partners, particularly China. When critics argue these tariffs merely increase prices for US consumers, they miss the strategic dimension. Trump’s team expects that foreign central banks will lower interest rates to absorb the recessionary shock to their economies, devaluing their currencies against the dollar. Foreign entities in effect pay for the tariffs while Trump secures a revenue stream that bypasses congressional approval.

The second phase involves isolating trading partners individually for negotiations, presenting a stark choice: either sell dollar holdings to revalue currencies or swap short-dated US treasuries for longer-term, lower-interest debt. Either option represents a win for Trump — if they agree, he claims victory; if they refuse, tariffs remain, continuing to generate revenue.

The world isn’t standing still under this pressure. A coalition of nations, particularly within the expanded Brics group (now 11 members with about 40 applicants), is developing alternative financial frameworks to bypass dollar dependency. Most significant is the development of a settlement currency called “the unit” and a blockchain-based settlement system called Bridge (formerly MBridge before the Bank for International Settlements withdrew support).

This system, already operational with test transactions between China and the United Arab Emirates (UAE), represents the first serious technological challenge to the Society for Worldwide Interbank Financial Telecommunication’s (Swift) monopoly on international settlements. As one expert notes, “The resolve of the Global South, of the Brics nations, to continue to find a settlement currency outside the dollar ... will have a dramatic effect on the dollar’s not only settlement status but ultimately also its reserve status.”

The historical context is crucial to understanding this shift. Since the 1970s, when the US struck a deal with Saudi Arabia to sell oil exclusively in dollars (creating the “petrodollar” system), countries worldwide have been required to hold dollars for energy transactions. This arrangement created permanent demand for US debt, allowing America to run enormous deficits and print currency without conventional consequences. 

However, this system has been increasingly strained by the US’s transition from oil importer to exporter, reducing Saudi dependency on the US market; the weaponisation of financial systems against countries such as Russia; and growing recognition that holding dollar reserves creates vulnerability to US policy decisions.

For SA, this realignment presents both significant risks and opportunities. As a Brics member, SA sits at a crucial intersection of emerging financial systems. The country’s participation in Brics initiatives such as the New Development Bank and potential involvement in the Bridge settlement system could reduce vulnerability to dollar fluctuations and sanctions pressure.

SA’s substantial gold reserves take on renewed significance as countries worldwide increase gold holdings to hedge against currency instability. A global monetary reset that revalues gold would dramatically alter SA’s economic position. 

However, SA must navigate carefully. Trump’s threat of 100% tariffs against countries engaged in de-dollarisation could create significant trade disruptions. The strategic imperative lies in diversification — of trade relationships, currency reserves and settlement mechanisms. The country’s dual position — maintaining important ties with Western nations while participating in Brics alternatives — requires sophisticated financial diplomacy.

These developments point towards either a managed transition to a multipolar currency system or a more disruptive global monetary reset. The scale of global debt — exceeding $315-trillion — makes some form of systemic adjustment inevitable.

Some analysts speculate that Trump, with his background in bankruptcy restructuring, might facilitate a controlled reset of the dollar system — potentially including a significant revaluation of gold reserves to rebalance sovereign balance sheets. The alternative, an uncontrolled crisis triggered by market forces, is likely to prove far more destabilising. 

What remains clear is that the historical anomaly of a single national currency serving as the world’s primary reserve asset is approaching its limits. For policymakers, the strategic imperative involves developing resilient national frameworks that reduce vulnerability to external monetary shocks. This includes diversifying sovereign reserves beyond traditional dollar assets, establishing robust bilateral trade mechanisms, and strengthening domestic productive capacity. The coming transition — whether gradual or sudden — is likely to favour nations that have systematically reduced their exposure to the volatilities inherent in a shifting reserve currency landscape. 

As we witness this historic shift, one truth becomes increasingly evident: the post-World War 2 financial architecture is undergoing its most significant transformation since Bretton Woods. The chess pieces are moving, and the outcome of this grand game will redefine economic relationships for decades to come.

• Mafinyani is risk advisory and financial modelling partner at DiSeFu, a specialised financial technology and risk advisory firm operating in the sub-Saharan region.