The official currency of the United States of America has held sway over the transactions that make the world go ‘round for eight decades.
But in weaponizing the buck against Russia earlier this year, did the U.S. inadvertently set off a chain reaction that ends with other countries moving away from the American dollar as the global currency of choice?
That’s the question posed by a new research paper published by the International Monetary Fund, and it yielded some interesting results.
First, the popularity of the American dollar has been declining for about 20 years, a timeline that coincides with the beginning of former President George W. Bush’s war on terror, a war that included financial sanctions for some countries accused of harboring known terrorists.
Financial sanctions are a bloodless weapon that can still cause a great deal of harm in the short-term, and sometimes that’s enough because, in a world where a large percentage of business is done with the American dollar as the common currency, limiting or cutting off access to it can be a very persuasive tool.
But if that financial weapon of mass destruction is utilized more than sparingly, other nations can get spooked into diversifying their financial portfolios, a fact that both Russia and China are banking on as both nations are trying to sway other countries towards their preferred currency.
On Thursday, Russian President Vladimir Putin floated the idea that he may limit the sale of Russian oil and gas to countries that pay in Russian rubles. While America gets a small percentage of its fuel from Russia, the nation accounts for about 40% of gas and 30% of oil in the European Union.
As for China, they’ve been trying to persuade the world to switch from the dollar to the yuan for quite some time, and yet only about 3% of all of the world’s transactions are in yuan. In contrast, about 40% of transactions use the dollar, so even if some nations start to worry, America hasn’t cashed in all of its collateral and credibility yet.
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