A Weapon Attack Against the Dollar Growing Around the World | the world

Monetary experts are not as bold as Cassandras, who has uncomfortably predicted the dollar’s imminent demise several times over the past century. Yet, looking at this sudden wave of deals aimed at avoiding the dollar, they find a small and gradual, significant move that hasn’t been seen in the past.

For many world leaders, the reasons for taking these steps are similar. The dollar is becoming a weapon, they say, used to prioritize US foreign policy And punish those who oppose them.

read more: A deal against plastic pollution? The first draft will be ready by November

Nowhere is this more evident than in Russia America It has dealt an unprecedented financial blow to Yin’s regime Vladimir Putin In response to the invasion of Ukraine. The Biden administration has imposed economic sanctions, frozen hundreds of billions of dollars in Moscow’s foreign exchange reserves and, along with Western allies, nearly kicked the country out of the World Bank system. For much of the world, it has been a stark reminder of their dependence on the dollar, whatever they think of the war.

This is the dilemma facing Washington officials: increasingly relying on the dollar to fight their geopolitical wars, Not only does it risk damaging the dollar’s preeminence in global markets, it could also undermine its ability to influence the world stage. According to Daniel Mcdowell, author of Bucking the Buck: US Financial Sanctions and the International Backlash Against the Dollar, to ensure long-term effectiveness, it is better to leave sanctions as a threat and not implement them.

Now, a rational actor, knowing that they might find themselves in that situation in the future, prepares for that situation, which makes their persuasive threats, and their deterrent threats, less effective.said McDowell, director of university studies in the political science department at Syracuse University. “The change may be marginal now, but even if it ultimately culminates in something that doesn’t eliminate the dollar“, even more important, because how”It can reduce the economic power of the United States”.

See also  Follow the speeches of world presidents and heads of state live from the UN General Assembly in New York | Tina Poluiarte | Volodymyr Zelensky Joe Biden | Ukraine | Peru | Brazil | Russia | United Nations | the world

Of course, part of the dollar move is orchestrated by China. President Xi Jinping He wants the yuan to play a bigger role in the global financial system, and his government has made expanding the currency’s use overseas a priority.

read more: Fitch says the US remains on negative credit watch despite the debt deal

However, much of this momentum is taking place without Beijing’s involvement.

India and Malaysia, which are not China’s strategic allies, announced a new mechanism for bilateral rupee trade in April.. This is part of a broader effort by the Narendra Modi government not to join the US-led campaign of sanctions against Russia to avoid the dollar in at least some international transactions.

A month later, the Association of Southeast Asian Nations agreed to increase the use of its members’ currencies for regional trade and investment.

And South Korea and Indonesia signed an agreement a few weeks ago to promote direct exchange of won and rupiah..

Brazilian President Luiz Inacio Lula da Silva slammed the dominance of the dollar during a visit to Shanghai in April. Standing on a stage surrounded by the flags of Brazil, Russia, India, China and South Africa, the so-called BRICS nations, Asking the world’s largest developing economies to replace the greenback in foreign trade, “Who decided that the dollar was the (trade) currency after the end of the gold standard?”.

The use of the dollar as a reserve currency is declining.

In the early 1970s, the post-World War II agreement known as Bretton Woods, which had made the dollar the center of global finance, was unraveling. The collapse of the deal did not affect the forward position of the dollar. To this day, it is the world’s dominant reserve currency, fueling demand for US bonds and allowing the country to run large trade and budget deficits.

read more: Hollywood screenwriters have been on strike for a month and there’s no sign of a deal coming

The currency’s centrality to the global payment system allows the United States to exert unique influence over the economic fate of other countries.

See also  The smallest country in South America pays the highest minimum wage in the entire region: how much is the Peruvian sole worth?

According to the most recent data from the Bank for International Settlements, about 88% of all global currency transactions, even those that do not involve the United States or American companies, are made in dollars. Because banks that handle cross-border dollar flows maintain accounts with the Federal Reserve, they are vulnerable to US sanctions.

While the campaign of financial sanctions against Russia is the most recent and prominent example, both Democratic and Republican administrations have sought sanctions against countries such as Libya, Syria, Iran, and Venezuela in recent years.

According to a recent report from the Center for Economic and Policy Research, the Biden administration has added an average of 1,151 new positions per year to the Office of Foreign Assets Control’s list of special appointees. This number was higher than the average of 975 during the Trump administration and 544 during President Obama’s first four years.

Countries have suffered from the dominance of the US dollar for decadessaid Jonathan Wood, director of global affairs at consultancy Control Risks. “The more aggressive and extensive use of U.S. sanctions in recent years reinforces this depression, and coincides with the demands of major emerging markets for new supplies of global power.”.

read more: Ecuador: Lasso announces he will not run for re-election

A Treasury official quoted Bloomberg, referring to Secretary Janet Yellen’s mid-April comments to CNN, saying, “There is a risk when using fiscal sanctions that are tied to the dollar’s share, that could be undermined over time. The dominance of the dollar.”

But the greenback,” he pointed out.It is used as a world currency for the reasons that it is not easy for other countries to find a substitute with the same characteristics”.

Market watchers agree. While more countries want to reduce their dependence on the dollar, few expect their preeminence in global trade and finance to be threatened anytime soon.

See also  According to AI, which city in Latin America has the most modern and beautiful airport? | Answers

First, there is little indication that another currency can provide the same level of stability, liquidity and security. And most of the advanced economies of America’s allies, which account for more than 50% of world GDP, show little urgency to abandon the greenback.

Indeed, the dollar has rallied against its major peers since the US stepped up its sanctions against Russia last year.

read more: Arlene is shaping up to be the first storm of the current Atlantic hurricane season

I don’t see any asset replacing the dollar as the dominant currency in the next generationGeorge Boubouras, a three-decade market veteran and director of research at K2 Asset Management in Melbourne, says: “Nothing comes close to the strength of the US economy. China has its problems with an aging population, and the euro is having a tough time gaining ground. The dollar will not be dethroned in the near future”.

Brix reaction

However, the pace of demonetisation continues in developing countries.

Pakistan wants to pay for Russian crude oil imports in yuan, the country’s energy minister said last month. Earlier this year the United Arab Emirates announced that it was in early stage talks with India to improve trade.Rupees do not have an oil tanker.

Earlier this week, the BRICS nations asked the group’s purpose-built bank for guidance on the functioning of a possible new common currency, including how it might protect member states from the impact of sanctions on Russia.

Undoubtedly, demonetisation will accelerate and continue in the coming years.”, said Vishnu Varadhan, Head of Economics and Strategy, Mizuho Bank Limited in Singapore. “The US made a calculated decision to use the dollar to inflict pain, and there are likely to be long-term consequences.”.

Unlimited benefits with your subscription to Admin! Up to 70% off. Over 300 Subscribers Club Ads you can use as many times as you want. Meet them Here Not a subscriber yet? Get your plan Here.

Table of contents

Read more

Local News