Worldwide backlash against US dollar rapidly expanding
Around the world, and more specifically in Eurasia, many countries are beginning to drop the dollar as a peg in global trade. In particular, and in response to America’s sanctions, Russia is speeding up efforts with China and Iran to stop using the dollar in oil sales that are vital to Moscow and Tehran, as well as a growing host of others.
It is clear that many nations are redefining their sovereignty in terms of where the dollar sits in relation to their respective economies. In this manner, specific countries are asserting national sovereignty is to progressively abandon the dollar, which for decades has been the world’s main reserve currency and the medium of exchange for trade in oil, copper and other vital commodities. The phenomenon of countries replacing the dollar serves to restrict Washington’s capacity by creating the necessary alternative tools in the financial and economic realms that break the dollar as an anchor. Thus, for these countries, the time to look for alternatives in the changing geo-economic order when currency pegs come into play is already here and being implemented.
Russia wants out of the US dollar now. Energy Minister Alexander Novak noted that a growing number of countries are interested in replacing the dollar as a medium for settling global oil trades and other transactions. He called for a common understanding that needs to move toward the use of national currencies in all financial settlements, to include Turkey, Iran, China and others. Russia is considering a number of options for payment in national currencies with Moscow’s allies across financial, economic and banking sectors. Even within Russia, growing signs of distrust of the dollar is occurring among urban citizens, who are tired of foreign money from America.
For years, China sought to topple the dollar as the governing global currency and it is currently embroiled in a major trade struggle with the US, with both sides raising tariffs on each other’s exports
For years, China sought to topple the dollar as the governing global currency and it is currently embroiled in a major trade struggle with the US, with both sides raising tariffs on each other’s exports. China’s yuan is increasingly becoming a transregional substitute for the dollar in global trading and is increasingly being accepted as the currency of choice. This move by China adds to the tensions with the US over a host of issues related not just to tariffs, but also economic transactional policy in an age of sanctions or other punitive measures.
Iran, which has also been targeted with a global audit and implementation of American sanctions, has similar reasons to want to abandon the US dollar. Both Iran and Russia are major oil exporters whose petroleum industries and exports have been targeted by America’s punitive sanctions.
US sanctions on Iran’s oil sector come into effect in November. Thinking ahead, Tehran has signed several agreements with other countries to use their currencies and even cryptocurrencies, pending additional security protocols to be added in emerging trade deals. Tehran is currently in negotiations with Russia to use their respective national currencies in trade. Both Russian President Vladimir Putin and Iranian Supreme Leader Ayatollah Ali Khamenei agree that a joint front to drop the US dollar in bilateral trade is the best way to avoid US sanctions and, from Moscow and Tehran’s point of view, such a move shows signs of further sovereignty against American power.
The US removal of Iran from the SWIFT payment system would accelerate the process by paving the way for the Chinese Cross-Border Interbank Payment System (CIPS), which could lead to a clear break away from the dollar.
Gold is also a growing factor in dropping the American dollar. Moscow and Beijing are aiming to back their currencies with gold and the Chinese have been active in promoting trade using a convertible yuan, with conversion into gold part of the offers to oil exporters. Oil exporters are able to convert yuan into gold via the Shanghai International Energy Exchange — this signals that countries are starting to operate in a non-dollar environment and through alternative financial systems.
For the Gulf, the idea of moving away from the US dollar is tempting in order to expand the region’s energy market share in China and reduce Chinese imports from Iran. Such activity would put the Gulf countries in an interesting situation, as they are dedicated to having the dollar tied to oil and their national currencies pegged to the dollar.
Overall, China, Russia, Iran and other countries see dropping the American dollar as a strategic priority. The number of countries that are beginning to see the benefits of a decentralized financial system, as opposed to the US dollar system, is increasing, with some countries trying to circumvent and later perhaps block the dollar payment system altogether through barter trade or payment in national currencies as part of international sovereign economics.
These countries can ultimately bond together to literally oust the dollar from their respective economies or from emerging blocs such as BRICS. Given the desire to isolate the US under Trump, these countries seek to act in concert to perhaps one day place financial sanctions on companies representing American goods and services, and their use of the US dollar in transactions.
- Dr. Theodore Karasik is a senior adviser to Gulf State Analytics in Washington, D.C. He is a former RAND Corporation Senior Political Scientist who lived in the UAE for 10 years, focusing on security issues. Twitter: @tkarasik