President Donald Trump has threatened 100% tariffs on BRICS nations for exploring an alternative to the dollar in international payments.

Since World War II, U.S. Treasuries have provided foreign central banks, businesses and investors with a stable, secure store of value and that enables the dollar to be the primary currency for international commerce.

When a Chilean firm imports clothing from Vietnam it must convert pesos to dong but the market between those currencies is thin. Instead, its bank likely uses the SWIFT messaging system in Brussels to order the purchase of dollars through a U.S. bank and then similarly purchases dong with those dollars.

U.S. dollars constitute 58% of the foreign currency reserves of central banks and are on at least one side of 88% of all foreign exchange transactions.

Access to SWIFT, which the United States can influence, and the U.S. banking system, which the Treasury controls, are essential.

Other nations and investors were happy with this as long they were confident the United States would exercise its power responsibly and offers a legal system that protects against the arbitrary confiscation of assets. And that the United States pursues macroeconomic policies that secure the real value of their treasuries against outsized inflation.

Enter Washington’s increasing reliance on economic sanctions to accomplish foreign policy objectives.

In 2018, Trump withdrew the United States from the agreement with Iran to curb development of nuclear weapons and cut off its access to dollar payments for its oil. The Europeans, who strongly supported the pact, established INTEX as an alternative platform. Ultimately, it failed owing to the necessity of finding pairs of customers in Europe and Iran seeking currency exchanges in similar amounts.

Russia, China, UAE and few other nations have explored another alternative vehicle, mBridge, for bilateral currency transactions. But duplicating the complex SWIFT system and lacking a store of value analog to U.S. treasuries pose considerable challenges.

Now, Mr. Trump is brandishing a wide range of punitive tariffs in violation of U.S. international obligations and threatening to deport 13 million irregular immigrants that his predecessor effectively welcomed.

These draw into question the prudence of relying on the United States to be custodian of the primary artery of international commerce—the payments system.

The same applies to Mr. Trump’s attacks on an independent judiciary, threats to send the U.S. military to Mexico to combat drug cartels and seize Greenland and the Panama Canal from a friendly governments.

The Trump 2017 Tax Cut and Jobs Act and President Joe Biden’s executive orders expanding Obamacare subsidies, social programs and student loan forgiveness, and industrial policies for semiconductors, green power and electric vehicles have increased the federal deficit from 3.2% of GDP in 2016 to 6.4% in 2024.

Extension of the individual tax cut provisions of the TCJA that soon expire and other enhancements promised by Mr. Trump could take the deficit north of well above 7%.

With the supply of new Treasurys to finance the deficit growing rapidly, the United States may find the world’s appetite for its debt has limits.

Already, we have seen warnings.

In July 2023, the Treasury announced a temporary surge in borrowing requirements to rebuild cash balances after a debt ceiling standoff in Congress was resolved. That instigated a full percentage-point jump in the 10-year Treasury rate by late October, even as the Federal Reserve was holding its benchmark rate steady.

Since September 2024, the Federal Reserve has lowered the federal funds rate by one percentage point, but the market rate for 10-year treasuries has risen substantially.

Another round jump in the budget deficit and Treasury borrowing requirements could instigate fears that the Fed would be impelled to deter rising interest rates from choking off growth by printing money to buy longer-term treasuries.

Washington wouldn’t formally default, but printing money to enable ballooning federal deficits would accelerate inflation, erode the real value of foreign holdings of Treasurys and compromise the dollar as a reliable store of value.

Then the search for alternatives to the dollar as an anchor for global commerce could get a lot more serious.

A reserve currency that was convertible to a basket of major currencies would only be subject to the average pace of inflation of those currencies’ issuing nations. Bonds denominated in that asset would entail less risk to the profligate behavior of any one government.

Libra, as proposed by Meta in 2021, would have been a digital currency backed by a basket of leading currencies. An analog could be created by major nations at the central bank of a neutral country with a reliable legal system like Switzerland.

That central bank could offer large commercial banks accounts denominated in libra and enable a market for foreign governments and businesses to issue bonds and obtain loans denominated in libra.

That would create a store of value reasonably free of the risks from American fiscal profligacy and the whims of national political leaders.

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|Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.