U.S. Treasury Secretary Janet Yellen has cautioned of the risks that persist in the continued use of sanctions linked to the U.S. dollar, which could potentially undermine its hegemony in international markets.
Yellen Warns of Possible Dollar Domination Risk
Janet Yellen, the U.S. Treasury Secretary, has been outspoken about the dangers of the weaponization of the U.S. dollar, which could cause the loss of its hegemony in the long term. In a recent interview, Yellen pointed out the need to “use financial sanctions judiciously” to avoid this scenario.
On the matter, Yellen stated:
So, there is a risk when we use financial sanctions that are linked to the role of the dollar, that over time it could undermine the hegemony of the dollar, as you said. But this is an extremely important tool we try to use judiciously.
Yellen is aware that such sanctions could trigger a desire to search for alternatives to the U.S. dollar, although she also pointed out that this is a difficult task due to the unique characteristics of the currency. She continued:
We haven’t seen any other country that has the basic infrastructure – institutional infrastructure – that would enable its currency to serve the world like this.
This conclusion was also reached by the Bank of Russia in a report entitled “Review of the Russian Financial Sector and Financial Instruments”, which stated that it would be hard to substitute the U.S. dollar due to the current structure of foreign trade.
Sanctioned Nations Seek Other Options
Even with the difficulties, countries under U.S. sanctions, such as China, Russia, and Iran, are now beginning to develop integration policies that allow them to conduct trade without the U.S. dollar. For example, China and Russia have already started settling transactions using the Chinese yuan, leveraging specially designated banks to facilitate these payments.
In his recent visit to China, Brazilian President Luiz Inacio ‘Lula’ da Silva called for developing nations to move away from the U.S. dollar and for BRICS to establish a new currency. This matter will be discussed at the upcoming BRICS summit, scheduled for August in South Africa, according to statements from a Russian State Duma official. Russia and Iran are also close to concluding an agreement to further their trade collaboration, in order to avoid the sanctions of the U.S.
What do you think about U.S. Treasury Secretary Yellen’s standpoint on sanctions and the future of the U.S. dollar? Share your thoughts with us in the comment section below.
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