Sanctions: slow motion dedollarisation

We get it from the horse’s mouth. Sanctions will ultimately lead to the demise of the US Dollar as trading & reserve currency. US Treasury Secretary Janet Yellen states unambiguously: “The more sanctions the US imposes, the more countries (Read: BRICS) will seek financial transaction methods that do not involve the US$”.

This implies that US Treasury is beginning to read the tea leaves that sanctions are not only counterproductive but has shifted geoeconomics power spectrum towards the victims of the sanctions notably Russia. An appreciable reduction for the demand of US Dollar as trading currency has started to bite the ability of the USA to print more currency notes.

This is not the first time Janet Yellen was sounding the efficacy of financial sanctions prohibiting the use of US$ by target countries. In close door sessions in the US Treasury she was cajoling for a draw-down of sanctions in order to increase demand for Dollars as she noticed excess liquidity of the Dollar in the Forex markets that dilutes its value.

Pointedly this is the first time she became unequivocal about the failure of sanctions regime imposed by Biden Administration and openly criticised sanctions police per se finding fault with its implementation across the board from the west to the east of the globe.

The gung-ho she exhibited when confronted with the attempt by like-minded nations in the BRICS Alliance to progressively reduce the Dollar usage she pompously said: “Virtually no meaningful workaround for most countries for using Dollar as reserve currency”. That was in July 2003 just one year ago. Later she modified her stance on Dollar as reserve currency thus: “We should expect over a time a gradually increased share of other assets in reserve holdings of countries, a natural desire to diversify. But the Dollar is far and away the dominant reserve asset”.

More and more countries are exasperated by living under the threat of sanctions at the fall of the hat when America imposes direct and third party liability in case these countries trade with countries such as Russia & Iran.  India was often at the crosshairs of the USA regarding third party liability.

Geoeconomics is changing a lot these days. China for example exports more to the global south compared to the global north consisting US & her allies. Recent business strategy of China towards Europe saw a surprising trend. China is building factories within Europe to export to Europe without using any form of US Dollar.

Here is an eye-opener: BYD the Chinese electric car manufacturer plans to build a factory in Turkey costing more than one Billion US Dollars in order to manufacture and export about 150,000 electric as well as hybrid vehicles to the European market, billed in Euro rather than US Dollar!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist