April 1, 2023
(A STORY THE US PRESS WILL NOT PRINT)
BIDEN WEAPONIZES DOLLAR: ENCOURAGES ABANDONMENT OF RESERVE CURRENCY STATUS
As a result of weaponization of the dollar to punish Russia and the sharp rise in the value of the dollar over the last decades…the world is moving away from the greenback as the world’s reserve currency. That is not a good sign for the US economy. (See Aljazera, March 7, 2023 “Will Russian sanctions dethrone the dollar” )
Since the end of WW II, the world has depended on the US dollar as its reserve currency. Reserve currencies help to “grease the skids” for international trade. A reserve currency facilitates investment, paying international debts, and limits “exchange-rate risk” for traders and investors. There are great advantages to having a reserve currency. Foreign nations hold US dollars all over the world to conduct business, pay debts, and store wealth in a secure currency that will hold its value. For these reasons dollars are in high demand. The advantage for the US governments comes with lower interest rates, high value of the dollar, and easy access to borrowed money.
When Russia invaded the Ukraine in 2022, the Biden Administration, abandoned diplomacy , and instead, instituted a series of “sanctions” against Russia. The Biden team froze billions of Russian dollars held in reserve currency bank assets, and then as well, (the “nuclear option”) shut Russian banks out of SWIFT, (an international money transfer system used by banks to facilitate international money transactions).
The world business community favors stability, security and predictiveness in international monetary matters. World business interests perceived the Biden Administration’s policy with trepidation. They viewed Biden’s acts as an abrogation of the responsibility of a major economic power to maintain stability, trust and order in the world economic system. The manner in which the Biden Administration used its special reserve dollar privilege , was viewed as dangerous and threatening. The term “weaponization of the dollar” is now used to described the US policy. The world business community responded to this existential threat against the entire business and financial world with a move away from the dollar.
Their reason was that if the USA could use its reserve dollar advantage as a weapon in its political and economic war to deny Russia its own reserved dollars ($300 billion worth) it could do it to any one of the world’s smaller, less powerful nations, were they to fall afoul of the US administation. This Biden policy threatened the security and stability of international trade relations.
China and Russia are both targets of sanctions by the US, and as a result have been in the forefront of those looking to end the dependence on the dollar. China is slowly selling off its treasury notes. It has almost $900 billion dollars of US treasuries today, but this amount, the lowest it has had in recent history, is in regular decline. As China and others sell off treasury notes and convert into using other currencies those dollars return to the US to inflate our dollars, Inflation would get much worse than it is now.
In fact, China has just recently (March 30, 2023) negotiated a deal with Brazil, (the largest economy in South America) to abandon the dollar and settle trade and other debts with their own currencies—the Yuan and the Real. A month earlier in February, China and Iraq revealed a deal in which Iraq will abandon the dollar in its sale of oil, and permit other trade with China in renminbi (Yuan). Other nations such as Bangladesh, Shanghai, Uzbekistan, Kazakistan, Tajikistan Kyrgyzstan, and Saudi Arabia, have in recent months made similar deals to abandon the dollar and trade in Yuan and other currencies.
But fear of sanctions and US retaliation are the most important, but not the sole reasons for abandoning the dollar in transactions. The high cost of being forced to trade in dollars is also a factor. Since 2013, the dollar has risen by 30% in value against other currencies. Just over the last year, it has gained 10% in value. For countries that buy large quantities of food or fuel or other essentials from other nations, their import costs have risen accordingly. Costs are higher since they must first purchase high value dollars using their own currency, so as to to pay their trading nations in reserve dollars. It is a crazy system that simply increases the costs of anything they import by staggering amounts.
The nations of the world are looking to abandon the dollar as a special reserve currency. Fear of the USA using the dollar as a political and economic weapon to retaliate and control smaller nations, as well as the value of the dollar and rising import costs are making this huge change in US economic privilege a dire reality.
Among all the other slings and arrows of “Biden World” we have suffered over the last two years, this will hurt the long term economic situation of the US the most.
We will not like the results of decline in value of the dollar, the higher inflation as dollars held abroad come home, , higher interest rates and costs to borrow money, will be the negative economic results of Biden’s weaponization of the dollar.
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