WASHINGTON (Dispatches) -- Economic sanctions imposed on Russia and other countries by the United States put the dollar’s dominance at risk as targeted nations seek out an alternative, Treasury Secretary Janet Yellen has said.
“There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar,” Yellen said on CNN.
“Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative,” she told the network’s Fareed Zakaria in an interview.
Even so, Yellen said sanctions are an “extremely important tool,” all the more so when used by the United States and its allies as “a coalition of partners acting together to impose these sanctions.”
Countries with individuals and entities sanctioned by the Office of Foreign Asset Control (OFAC) like China, Russia, and Iran are starting to develop integration policies that allow them to conduct trade away from the U.S. dollar.
China and Russia have already started to conduct settlement transactions using the Chinese yuan, leveraging specially designated banks as clearing entities to facilitate these payments.
In his recent visit to China, Brazil’s President Luiz Inácio Lula da Silva called on developing countries to work towards replacing the U.S. dollar with their own currencies in international trade, lending his voice to Beijing’s efforts to end the greenback’s dominance of global commerce.
Lula called for the countries of the so-called BRICS group of nations — which in addition to Brazil and China includes Russia, India and South Africa — to come up with their own alternative currency for use in trade.
“Every night I ask myself why all countries have to base their trade on the dollar,” Lula said in an impassioned speech at the New Development Bank in S hanghai, known as the “BRICS bank”.
“Why can’t we do trade based on our own currencies?” he added, drawing loud applause from the audience of Brazilian and Chinese dignitaries. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
Lula’s call to shed dollar dependence dovetailed with Beijing’s increasing efforts to promote use of the renminbi in settlement of cross-border commodities trades, as Chinese policymakers seek to strengthen the role of the world’s second-largest economy in the global financial system.
Bilateral trade has ballooned over the past decade to $150.4 billion last year, with China buying Brazil’s agricultural commodities and minerals and investing in the Latin American country’s large consumer market and infrastructure sector.
The growing economic relationship