U.S. Treasury Secretary Janet Yellen has expressed concern about the potential dangers of sanctions based on the U.S. dollar, which could pose a threat to the currency’s hegemony in international markets. Yellen acknowledged that while the government tries to use sanctions “judiciously,” they may create a desire to find alternatives to the U.S. dollar. She also recognized that such sanctions could push countries like China and Russia to seek alternatives to the U.S. dollar, in order to conduct trades even when affected by these sanctions. However, she explained that this is no easy task due to the unique traits of the dollar.
Yellen’s comments come amidst a growing trend of sanctioned countries seeking alternatives to the U.S. dollar. China and Russia have already started to conduct settlement transactions using the Chinese yuan, leveraging specially designated banks as clearing entities to facilitate these payments. Brazilian President Luiz Inacio ‘Lula’ da Silva has also called for developing nations to abandon the U.S. dollar and for BRICS to establish a new currency. The insurance of a BRICS currency will be debated at the next BRICS summit, which will be held in South Africa in August, according to statements from a Russian State Duma official.
Despite the difficulties of substituting the U.S. dollar, countries with individuals and entities sanctioned by the Office of Foreign Asset Control (OFAC) like China, Russia, and Iran, are starting to develop integration policies that allow them to conduct trade away from the U.S. dollar. Russia and Iran are also finalizing an agreement to deepen their trade collaboration, avoiding the crippling sanctions that the U.S. has enacted against them.
The Bank of Russia has also recognized the difficulties of substituting the U.S. dollar, stating in a report titled “Review of the Russian Financial Sector and Financial Instruments” that substituting the U.S. dollar will be difficult due to the current structure of foreign trade.
It remains to be seen how this trend will affect the future of the U.S. dollar’s hegemony in international markets. Yellen’s comments suggest that the government is aware of the potential risks of sanctions based on the U.S. dollar and is trying to use them judiciously. However, with more countries seeking alternatives to the U.S. dollar, it may become increasingly difficult to maintain its hegemony in international markets.
As the world continues to evolve, it is important to keep an eye on the trends that may affect the future of international trade and the role of the U.S. dollar in it.