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Weaponization of the dollar?
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Loading...At the heart of the sanctions that the U.S. imposes on countries like Russia, Turkey and Iran is the dollar, which comprises the greater portion of central bank reserves. The sanctions imposed on Sergey Deripaska, for instance, effectively block him from the global dollar-based financial system. Of course, the sanctions are not without a reason. Despite the complaints of Turkey and Russia, the sanctions imposed by the US are not capricious: in most cases, they target people involved in the contraband of nuclear material and weapons, crimes against humanity or corruption. Isolated from the SWIFT system of international banks, countries like China and Russia are trying to encourage their partners to trade with each other without the use of dollars.
The problem, however, is that the US is fighting a war on too many fronts: China, Russia, Iran, Turkey, North Korea etc. Roughly, 10% of the world's countries are in one way or another in a trade conflict with the U.S. And these many fronts are uniting against the US. In their last meeting, Putin and Xi underlined the close relations between their countries; both countries also refuse to follow U.S. sanctions on Iran. Meanwhile, Turkey is drifting further into Putin's sphere of influence. This new union was confirmed last week: Russia announced that it will seek to trade with Turkey using the ruble or the lira. By isolating so many countries from its sphere of influence, the U.S. is risking to unite them in creating a parallel non-dollar financial system.
This can be seen most clearly in commodities markets, especially oil. Traditionally, oil is priced in dollars everywhere around the world. Last year, however, Shanghai International Energy Exchange started trading of yuan-denominated oil futures. Also, China and Russia have agreed to conduct their energy trading using yuan.
To a large extent this explains the interest that Russia and many other emerging economies take in cryptocurrencies and blockchain technology. A crypto-ruble would be a financial system, which would allow transactions without the control of a central governing body.
At present a quarter of the world's population live in a country that is in one way or another isolated from the dollar-based financial system. A priority for Washington should be to renew people's faith in the system that has allowed so much prosperity in the U.S. and the world.
Source: CNBC
Original post: The anti-dollar awakening could be ruder and sooner than most economists predict
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