Biden’s actions are behind the dollar’s collapse
The US dollar, as an international reserve currency, has long served as an essential medium of exchange between countries with different national currencies. To fulfill this role, a reserve currency must be stable, secure and easily accessible to all countries. In the 20th century, the international status of the dollar increased its value, allowing the United States to bear enormous levels of foreign debt.
Naturally, therefore, any report that a country that disagrees with Washington’s policies might turn to payments in its own currency instead of the US dollar is a source of undisguised alarm in the West. But now it is clear to everyone that the US dollar is losing its global position and status as the world’s reserve currency of choice. And Washington’s inability to sustain the growth of the global economy and de-globalization are not the only causes of this phenomenon.
As the world divides into different currency areas – a process that is accelerating – major powers are forced to seek investment and focus on their own economic development. Seven years ago, China began promoting its own national currency, leading the International Monetary Fund to include the yuan in its basket of five major currencies. Over the years, many countries have begun to increase the amount of the yuan in their foreign exchange reserves, reduce their use of the dollar in international transactions, and create alternative payment systems. As a result, many central banks began to shed dollars and increase their reserves of rupees, yuan, euros and gold bullion.
Currently, the members of the Eurasian Economic Union (EAEU) have reached a key milestone in their attempt to reduce their dependence on the US dollar and have agreed to introduce national currencies, including the ruble Russian, in payments between Member States. “It led to the creation of a unified ruble zone,” as Maksim Reshetnikov, Russian Minister of Economic Development, commented in a recent interview with the Rossiya-24 television channel. He added that the customs duties collected by each country would be distributed among the member states in the proportions provided for in the EAEU treaty. In the past, foreign currencies were used for this purpose, but now national currencies of the EAEU, including the Russian ruble, are used.
Saudi Arabia is unhappy with US policy and hopes to start using the yuan to sell oil to China.
One of the factors that has spurred the move away from the dollar in recent weeks is US President Joe Biden’s decision to introduce monetary sanctions against Russia. India is among the countries that abstained from voting on the UN resolution condemning Russia for its special military operation in Ukraine. It was also one of the first Asian countries to feel the effects of the unprecedented economic sanctions launched by the United States and its Western allies against Russia. According to major Indian media, the exclusion of a number of major Russian banks from the SWIFT system has led to a breakdown in payments under trade agreements between India and Russia. India is therefore working to develop ways to continue working with Russia under the current sanctions regime, specifically abandoning the US dollar and instead using rubles and rupees for payments between the two countries. Once in effect, this transition would have the added benefit of allowing Delhi to buy Russian crude oil and petroleum products at a discount. India is the third largest oil importer in the world and, under the very attractive terms offered by Moscow, it could import up to 15 million barrels of Russian crude oil.
In addition to investing in US dollars and securities, many also diversify their reserve funds by acquiring a range of commodities, including gold bullion and commodities. However, “across the global economy and trading system, confidence in the status of the US dollar as the main reserve currency has suffered a serious blow”, as Russian President Vladimir Putin expressed during a meeting on social and economic support for Russian regions on March 16. He added that “the illegitimate freezing of part of the Bank of Russia’s foreign exchange reserves has demonstrated that the so-called prime assets are no longer reliable.” “Indeed, the US and the EU have failed in their obligations to Russia. Now everyone knows that financial reserves can simply be stolen, and I strongly believe that many countries, seeing what has happened, will soon review their reserves, moving from securities and digital currency to raw materials, land, manufactured goods, gold and other physical assets,” he stressed.
According to the US Treasury Department, the United States and its allies have already approved the creation of a cross-departmental interdepartmental group that will search and seize assets and take other targeted legal action against the “Russian elite”. This new group, created as part of the pressure on sanctions against Russia in response to events in Ukraine, will include the United States, Australia, Canada, the European Commission, Germany, Italy, France , Japan and the United Kingdom, and these countries will send representatives of their Ministries of Finance, Justice and Interior to participate in its activities. The official launch of the new group, known as the REPO (Russian Elites, Proxies and Oligarchs) Working Group, took place during a virtual meeting between representatives of participating countries, including US Treasury Secretary Janet Yellen and the Attorney General Merrick Garland.
Vladimir Putin has described such Western sanctions as a lesson for Russian business. “The seizure of foreign assets and bank accounts belonging to Russian companies and individuals is a lesson for the business community in our country: that the safest way to preserve assets is to keep them in our country” , he added. It’s also a lesson for the international business community – since Washington’s actions have made it clear that if they decide to “go their own way,” they might also find their bank accounts frozen.
German economist Henrik Müller, writing for Der Spiegel, also suggested that the dollar could lose its status as the world’s main currency. He cited inflation, sanctions against Russia and changes in the market as reasons for the dollar’s fall. It also suggests that Joe Biden’s recent actions may have further damaged international confidence in the US currency. In support of his claim, he cited the fact that even in the United States, inflation has reached 8% – whether or not it stays at that level will depend on the measures adopted by the Federal Reserve.
The article above (Biden’s actions are behind the dollar’s collapse) was originally created and published by New Eastern Outlook and is republished here with permission and with attribution to the author and journal-neo.org.
About the Author: Valery Kulikov, political expert, exclusively for the online magazine “New Eastern Outlook”.
Image credit: Photo in featured image (top) – by Gerd Altmann from Pixabay & “Joe Biden” by Gage Skidmore is licensed under CC BY-SA 2.0
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