The dollar has been the world’s dominant currency since the 1950s, but this is now changing thanks to aggressive use of sanctions by the United States. This has been particularly noticeable under the Trump administration, with its cut-throat approach, exchanging traditional diplomacy for financial warfare, as only Donald Trump knows how. The financial hegemony created by the US last century is now showing definite signs of waning, as global powers such as China and Russia are looking to alternatives in a world that is undoubtedly edging towards multipolarity.
The beginning of the end for the dollar’s dominance can probably be traced back to 2001, with the terrorist attacks on September 11th. After that the US began to impose hefty fines on banks overseas for money-laundering and sanctions avoidance. Since then, Trump has taken financial warfare to a new level, using sanctions against Iran, North Korea, Russia and Venezuela. Then there has been his trade war with China. This has seen not only tariffs placed on Chinese goods but legal assaults involving companies such as Huawei, whom he has accused of espionage, and whose CFO was arrested in Canada in 2018 (on behalf of the US) for alleged ‘fraud related to sanctions against Iran’.
This particular case of Meng Wanzhou, the chief financial officer of Huawei, highlights just why nations are looking to assert their independence from the dollar. Wanzhou was arrested at Vancouver International Airport in December 2018 at Washington’s request, just as tensions were building between the US and China over trade tariffs imposed by the Trump administration. She was accused of defrauding financial institutions and lying in an attempt to get around US sanctions preventing other countries from doing business with Iran.
Huawei’s CFO has been subject to the full works: forced to surrender her passports, abide by a curfew and wear a GPS tracker. She has had to live under house arrest in Vancouver since she was released on a $10-million bail. Canada has been criticised for its handling of the case, including the father of Wikileaks founder Julian Assange, who has said it is another example of the US abusing justice systems to target its geopolitical enemies.
In its actions, the US has exposed China’s vulnerability to a financial system still very much dependent on the dollar. The US’ ability to blacklist Chinese tech firms such as Huawei, effectively relies on sanctioning the suppliers and business partners who use the dollar-based banking and payments system to do business with them. Some of the evidence against Meng Wanzhou is in fact from a US-appointed overseer from HSBC in London. In October last year the US sanctioned eight different Chinese tech firms for alleged human-rights abuses in the Xinjiang provinces. Human rights abuses or not, we don’t see any such sanctions against US allies such as Saudi Arabia with its abysmal human rights record. There is clearly a geopolitical motivation here.
Russia, on the other hand, has long understood the need to release itself from the clutches of US financial domination. It has gone furthest of all to secure its own independent economic future, creating expendable entities to do business with the countries on America’s blacklist, so that its own firms can be spared. It has also been actively de-dollarising parts of its banking system, reducing the dollar share of its foreign-exchange reserves from 40 percent to 24 percent. Recently the Ministry of Finance announced future plans to lower the dollar share of its $125 billion sovereign-wealth fund. Russia’s debt is also being gradually de-dollarised, with new issuance often in roubles or euros. Figures show that for 2019 62% of Russia’s goods and services were settled in dollars, compared with 80% back in 2013.
The Russian Central Bank’s governor, Elvira Nabiullina, has confirmed that the decision to move away from the dollar is a reaction to US sanctions – which were imposed after the reunification of Crimea and Russia in 2014 – but she has also spoken of a desire now shared by many in the international community, to shrug off the dollar’s dominance. As Russian President Vladimir Putin has said ‘We aren’t aiming to ditch the dollar. The dollar is ditching us.’ In June it was announced that both Russia and China would work towards more bilateral trade in their own currencies.
This new reality is also being recognised in the West. Bank of England governor Mark Carney said in August last year that a system dominated by the dollar ‘won’t hold.’ Trump has taken financial warfare to a new level, and so other countries have had to up their game also. The shift away from unipolarity has begun, as the US may soon pay its own price for its aggressive sanctions policy.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.