Dethroning the dollar—America’s aggressive use of sanctions endangers the dollar’s reign

EVER SINCE the dollar cemented its role as the world’s dominant currency in the 1950s, it has been clear that America’s position as the sole financial superpower gives it extraordinary influence over other countries’ economic destinies. But it is only under President Donald Trump that America has used its powers routinely and to their full extent, by engaging in financial warfare. The results have been awe-inspiring and shocking. They have in turn prompted other countries to seek to break free of American financial hegemony…

The world’s financial rhythm is American: when interest rates move or risk appetite on Wall Street shifts, global markets respond. The world’s financial plumbing has Uncle Sam’s imprint on it, too. Most international transactions are ultimately cleared in dollars through New York by American “correspondent” banks. America has a tight grip on the main cross-border messaging system used by banks, SWIFT, whose members ping each other 30m times a day. Another part of the US-centric network is CHIPS, a clearing house that processes $1.5trn-worth of payments daily. America uses these systems to monitor activity. Denied access to this infrastructure, an organisation becomes isolated and, usually, financially crippled. Individuals and institutions across the planet are thus subject to American jurisdiction—and vulnerable to punishment…

Using the dollar to extend the reach of American law and policy fits Mr Trump’s “America first” credo. Other countries view it as an abuse of power. That includes adversaries such as China and Russia; Russia’s president, Vladimir Putin, talks of the dollar being used as a “political weapon”. And it includes allies, such as Britain and France, who worry that Mr Trump risks undermining America’s role as guarantor of orderliness in global commerce. It may eventually lead to the demise of America’s financial hegemony, as other countries seek to dethrone its mighty currency.

The new age of international monetary experimentation features the de-dollarisation of assets, trade workarounds using local currencies and swaps, and new bank-to-bank payment mechanisms and digital currencies. In June the Chinese and Russian presidents said they would expand settlement of bilateral trade in their own currencies. On the sidelines of a recent summit, leaders from Iran, Malaysia, Turkey and Qatar proposed using cryptocurrencies, national currencies, gold and barter for trade. Such activity marks an “inflection point”, says Tom Keatinge of RUSI, a think-tank. Countries that used merely to gripe about America’s financial might are now pushing back.

Russia has gone furthest. It has designated expendable entities to engage in commerce with countries America considers rogue, in order to avoid putting important banks and firms at risk.

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