US sanctions are pushing many countries to seek alternatives to the dollar for settlements, Treasury Secretary Janet Yellen admitted during her annual appearance on Tuesday before the House Financial Services Committee to discuss the state of the international financial system.
Asked about the risk of de-dollarization, Yellen acknowledged that the use of the dollar in the global economy is diminishing.
“It’s not surprising that countries that are fearing they can be affected by our sanctions are looking for alternatives to the dollar. It’s something that we simply have to expect,” she stated.
Asked by Congressman Vicente Gonzalez whether the US should lower the use of sanctions in its foreign policy given that even traditionally allied countries, such as France, have been making non-dollar transactions, Yellen stated that for most countries she sees “no meaningful workaround” to using the dollar. She acknowledged that there is a growing diversification away from the greenback within global reserve assets but stated her belief that the dollar is likely to retain its status as the dominant currency.
“We should expect over time a gradually increased share of other assets in reserve holdings of countries – a natural desire to diversify… But the dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate… It will not be easy for any country to devise a way to get around the dollar,” Yellen stated. She noted that among the dollar’s major strengths are “deep liquid open financial markets, strong rule of law and an absence of capital controls,” which, according to Yellen, “no country is able to replicate.”
The power of the US dollar is the power of the US military.
The reverse is also true.
Both have fallen on some very hard times.
It’s an incredible admission from Yellen on some level, but it is also incredible that this would be downplayed. Most of the world – 85% of its population – has refused to go along with the Russia sanctions. China, the world’s leading economy, is now the de facto power center of most of the world.
The scale of this is hard to even state.
What is incredible is how quickly it is happening.
The Ukraine war is less than a year and a half old.
The hilarious thing is that the sanctions didn’t even do anything to hurt Russia. They hurt the West. Russia’s economy is doing great.
If it wouldn’t have been for the sanctions, the world mostly would have tolerated the war. But as Yellen says, every country is thinking “what if I’m next?” They are also seeing the fact that with China’s support, Russia is doing fine, despite having been banished from the “international community.”