Time to ditch US dollar

The United States government has been using the dollar as a convenient weapon of choice to preserve its global economic and geopolitical position for many decades. This has been evident through illegal sanctions for Iran, Russia and Venezuela, as well as members of the Organization of the Petroleum Exporting Countries (OPEC).

For instance and in a response to a potential passage of the bipartisan No Oil Producing and Exporting Cartels Act, known as NOPEC, in Congress that would enable the US Justice Department to sue OPEC for coordinating production, Saudi Arabia threatened to sell its oil in currencies other than the dollar. Fars news agency has thought-provoking analysis under the title of “Time to ditch US dollar.”

It said the plan had been discussed with OPEC members and that Riyadh had communicated the threat to senior US energy officials. Then later, Riyadh denied the report that it was threatening to sell its oil in currencies other than the dollar for passing NOPEC.

The implications of this new development are immense. The chances of the US bill coming into force might be slim and Saudi Arabia might not follow through. But that Saudi Arabia now claims it never considered such a drastic step is a telltale sign of the kingdom's growing concern about Washington's potential use of that convenient weapon to exert pressure, freeze assets, and challenge OPEC members.

During this process of reflection, Washington has weaponized the dollar anyhow, and this has prompted many countries to consider abandoning it as a medium of world trade. Russia, Iran and China have been trading in national currencies to weaken Washington's ability to enforce illegal sanctions on nation states.

The idea to ditch the dollar has also gained momentum in Europe since US President Donald Trump came to office. Trump has waged tariff wars against Canada, Mexico, the European Union and China. His assault on the global trading system has backfired and these countries have decided to move and diversify their trade away from the dollar in order to minimize the negative impacts of US tariffs.

Russia, which is subject to illegal sanctions, is selling oil in euros and China's yuan, and the proportion of its sales in those currencies has become significant in recent years. Venezuela and Iran, which are also under US sanctions, sell most of their oil in other currencies and have switched to non-dollar trading systems, even barter.

Likewise, several commodity-producing countries want to follow through and join the club of non-dollar traders – from lending to exchange clearing, and through yuan, euro and ruble pricing. This could include trading in derivatives such as oil futures and options, which is still dollar denominated. When this happens, and it will happen, as many nations are opposed to the US dollar as the world's reserve currency, the rest of the world market will follow suit to operate in a non-dollar environment.
The moment, therefore, is ripe for the world market to move trade out of the US currency and into other currencies in settlements. In today's multilateral world, it has become increasingly irritable for nations to purchase securities, goods and services in the US dollar. 

They want to opt for national currencies and ditch the greenback as a currency in their trade. This has become the new policy for countries like Iran which has no access to dollar-dominated SWIFT transactions because of the US sanctions.
Removing the US dollar as an export and import payment currency has made life easier for Iran, for those who want to buy the Iranian oil, and for those who are under Western sanctions. They have largely quit the dollar as a transaction currency and replaced it with national currencies.

Other commodity-producing countries could and should stop using the US dollar in global trade as well. They could use national currencies to reduce dependence on the greenback. This way, they can curb their exposure to dollar movement risks and the effects of illegal US sanctions and trade wars which typically feature cutting off their access to international trade and dollar-dominated transactions.

The United States has for decades determined the world's international reserve currency and foremost currency of trade. It has also waged economic wars and sanctions to keep its adversaries in check.

This basic fact combined with a reality in which Washington continues to weaponize the dollar against perceived geopolitical opponents has led to many countries and individuals openly discussing what global financial settlements might look like after the US dollar loses its status as the international reserve currency. A sensible answer to this question which puts water on the fire of "reserve currency nationalism" has to be as follows.

The World Bank, the International Monetary Fund and other international financial institutions must work towards a system in which no single nation issues and controls an international reserve currency. In such a new system, no nation would have to ultimately inflate its own money supply and will in order to provide liquidity to the rest of the world.

Also, under such a new framework, the international reserve currency basket would help to provide stability to the international trading community because the overall value of such a currency basket would not be the sole charge of any one nation. 

There are, of course, other proposals for an international reserve currency that are not based on a lone nation's fiat monetary policies. A return to a classical gold standard or silver standard continues to be proposed in certain circles while some continue to favor a mixed metallic standard. Some have even decided to use the barter system.

Here, in the words of Russian President Vladimir Putin, that’s because “The dollar is ditching us," and we are not ditching the dollar. Making the case that aggressive US measures and sanctions against its rivals Russia, Iran, China and Venezuela are undermining confidence in the dollar.

The past year was full of events that inevitably split the global geopolitical space into two camps: those who still support using US currency as a universal financial tool, and those who are turning their back on the greenback. Global tensions caused by economic sanctions and trade conflicts triggered by Washington have forced targeted countries to take a fresh look at alternative payment systems currently dominated by the US dollar.

This includes China: The ongoing trade conflict between the United States and China, as well as sanctions against Beijing's biggest trading partners have forced China to take steps towards relieving the dollar dependence of the world's second-largest economy. In Beijing's signature soft-power style, the government hasn't made any loud announcements on the issue.

This also includes Turkey: Earlier this year, President Recep Tayyip Erdogan announced plans to end the US dollar monopoly via a new policy that is aimed at non-dollar trading with the country's international partners. Later, Turkey's leader announced that Ankara is preparing to conduct trade through national currencies with China, Russia and Ukraine. Turkey also discussed a possible replacement of the US dollar with national currencies in trade transactions with Iran.
This also includes Iran: A triumphant return of Iran to the global trading arena did not last long. Shortly after winning the US presidential election, Donald Trump opted to withdraw from the 2015 nuclear deal signed between Tehran and a group of nations, including the UK, US, France, Germany, Russia, China, and the EU. The oil-rich nation has once again become a target for illegal sanctions resumed by Washington, which has also threatened to introduce penalties against any countries that would violate the embargo.

Sanctions have forced Tehran to look for alternatives to the US dollar as payment for its oil exports. Iran clinched a deal for oil settlements with India using the Indian rupee. It also negotiated a barter deal with neighboring Iraq. The partners are also planning to use the Iraqi dinar and Iranian rial for mutual transactions to reduce reliance on the US dollar amid banking problems connected to US sanctions.

Lastly, President Vladimir Putin has said the US is "making a colossal strategic mistake" by "undermining confidence in the dollar". Putin has never called for restricting dollar transactions or banning the use of US currency. However, Russian Finance Minister Anton Siluanov said earlier this year that the country had to dump its holdings of US Treasuries in favor of more secure assets, such as the ruble, the euro, and precious metals.
So far, these countries have managed to partially phase out the greenback from their exports, signing currency-swap agreements with each other. They have even proposed using the euro instead of the US dollar in trade with the European Union.

It is past time for other nations to follow suit. Iran, China, Russia, Iraq, India and Turkey are drafting a pact to boost the use of their national currencies in bilateral and international trade, underscoring their intent to cut their reliance on the US dollar. The development of a new international financial payments system could help address rising concerns over additional US sanctions and trade tariffs.

Looking back, this long-overdue and vital transformation of the global monetary system won’t happen overnight. But it is happening regularly and will most likely continue to happen.

EA/ME