US Treasury Secretary Admits Sanctions Could End Hegemony of US Dollar

US Treasury Secretary Admits Sanctions Could End Hegemony of US Dollar

The US Treasury Secretary, Janet Yellen, has admitted that sanctions based on the US dollar could end the hegemony of the currency in international markets. Yellen explained that the government tries to use sanctions "judiciously," as they can create a need to look for alternatives to the US dollar.

Dangers of Dollar Weaponization

Janet Yellen, the Treasury Secretary of the United States, has stated the possible effects that continued use of sanctions could exert on the hegemony of the US dollar in international markets. In an interview reviewed by Reuters, Yellen acknowledged that such a danger does exist in the long term.

She stated:

"So, there is a risk when we use financial sanctions linked to the role of the dollar that, over time, it could undermine the dollar's hegemony. But this is an extremely important tool, which we try to use judiciously."

Yellen recognizes that such sanctions push countries like China and Russia to seek alternatives to the US dollar to conduct trade even when affected by the sanctions. However, she also explained that this is no easy task due to the unique traits of the dollar. Yellen said:

"We haven’t seen any other country that has the basic infrastructure—the institutional infrastructure—that would enable its currency to serve the world."

This is the same conclusion that a report from the Bank of Russia, titled "Review of the Russian Financial Sector and Financial Instruments," reached, stating that substituting the US dollar will be difficult due to the current structure of foreign trade.

Sanctioned Countries Seek Alternatives

Even with all the difficulties, 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, except for the US dollar.

China and Russia have already started to conduct settlement transactions using the Chinese yuan, leveraging specially designated banks as clearing entities to facilitate payments. In his recent visit to China, Brazilian President Luiz Inacio ‘Lula’ da Silva called for developing nations to abandon the US dollar and for BRICS to establish a new currency.

According to statements from a Russian State Duma official, the insurance of a BRICS currency will be debated at the next BRICS summit, which will be held in South Africa in August. Russia and Iran are also finalizing an agreement to deepen their trade collaboration, avoiding the crippling sanctions that the US has endorsed against them.

What is your take on the US Treasury Secretary’s stance on sanctions and the future of the US dollar? Please post your comments.