As US wields sticks, China, Russia to counter dollar hegemony
As Washington wields sticks, urgency rises for de-dollarization: experts
As Russian Foreign Minister Sergei Lavrov started a two-day trip to China on Monday, days after senior Chinese and US officials clashed openly during a bilateral meeting, a major topic in talks with Chinese State Councilor and Foreign Minister Wang Yi is how to counter US sanctions — not just on China and Russia but a growing list of other countries — using its dollar hegemony, analysts said.
As the new US administration under President Joe Biden signals its intention to continue his predecessor Donald Trump’s confrontational approach by wielding sticks, many countries around the world are faced with the risk of a weaponized, dollar-centered global payment system and a growing urgency to find alternatives.
While ending the greenback’s dominance remains an almost impossible mission at the moment, there are ways for countries to find ways to at least avert certain sanctions and slowly chip away at the dollar’s dominance, analysts added, noting that the trend of de-dollarization in certain areas is on the rise.
Ahead of his visit, Lavrov blasted Washington’s “instinct” of using sanctions at every turn, which he said has become deeply rooted and a usual trick in its international dealings, warning such sanctions against China and Russia are “unwise”.
To counter US sanctions, Lavrov said, China and Russia must enhance their technological independence and push for the use of their own currencies to replace the dollar as global clearing units in order to minimize the risk of ill-willed US sanctions, according to the China Media Group on Monday.
Facing a series of damaging sanctions by Washington and potential blockade to the dollar-dominated global payment system, or SWIFT, Russia, China and other countries have embarked on de-dollarization efforts in recent years by using their own currencies in transactions instead of the dollar.
China, for its part, has been pushing for the internationalization of the yuan by expanding its use in transactions with more countries, particularly along the routes of the Belt and Road Initiative. China’s development of a digital yuan is widely believed to further ratchet up its currency’s broader use in many areas.
After a multi-year campaign, China and Russia’s de-dollarization efforts saw a breakthrough, as the dollar’s share in bilateral trade dropped from 90 percent in 2015 to 46 percent in the first quarter of 2020, falling below the 50-percent mark for the first time, according to the Financial Times.
There have also been talks among the BRICS (Brazil, Russia, India, China and South Africa) countries about using their own currencies in intra-bloc transactions. While efforts to build an alternative payment system still face hurdles due to differences, as trade and investment grows and as the US continues to weaponize its currency, more interest could develop, analysts said.
“Certainly, there is a growing trend of de-dollarization among certain countries in certain trades,” Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Monday, noting that while any single currency, whether it’s the yuan or the ruble, cannot challenge the dollar, “it will help avert some US sanctions.”
However, the resentment against Washington’s weaponizing its currency runs deep even among its allies in Europe.
After the US government imposed unilateral sanctions against Iran in 2019, European countries, including France, Germany and the UK, announced a euro-denominated payment trade with Iran designed to circumvent the US sanctions.
While the Biden administration has vowed to repair relationships with allies, some EU officials remain concerned about a weaponized dollar, The New York Times reported earlier this month. “I am deeply concerned at the growing use of sanctions, or the threat of sanctions, by the [US] against European companies and interests,” the EU’s foreign policy chief, Josep Borrell Fontelles, was quoted as saying.
Despite the dollar’s still-dominant place in global transactions, if its global usage were to keep declining, so would its dominance, analysts said.
“Remember that the real value of the dollar is in its wide adoption, the trust of a large amount of market participants in a paper that would otherwise be just worthless, a toilet-paper currency,” Angelo Giuliano, a Hong Kong-based financial consultant from Switzerland, told the Global Times on Monday.
Though there have not been open talks about broader cooperation in de-dollarization and there remain many potential challenges and complications, the combined influence of the currencies of China, the EU and other economies could pose substantial challenges to the dollar.
The dollar’s share in global transactions has been declining in recent months, as those of the yuan and euro have been rising, according to a SWIFT report in February. In January, the dollar’s share dropped to 38.26 percent from 40.81 in the previous year, while the euro’s rose over three percentage points to 36.6 percent and the yuan’s grew 0.77 percentage points to 2.42 percent.
“The US may still be able to impose sanctions at its will, but if it continues to do so for the long term, it will only drive many countries away and lose its dollar dominance,” Dong said.