Treasury Secretary Yellen:

U.S. Sanctions Undermine Dollar Hegemony

Date: 17 April 2023 - 22:34

News ID: ۱۱۴۱۰۳

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

has encouraged both countries to promote greater use of their respective currencies in bilateral trade. This week, the Brazilian branch of the state-owned Industrial and Commercial Bank of China settled its first transaction directly in renminbi in the country, Chinese state media reported.

Lula, who was also in Shanghai for the inauguration of former Brazilian president Dilma Rousseff as head of the New Development Bank, used the occasion to make impassioned speech about the need for the BRICS countries to trade in their own currencies. Aside from the BRICS, the bank’s membership includes Egypt, Bangladesh, Uruguay and the United Arab Emirates.

“Who decided that our currencies were weak, that they didn’t have value in other countries?” he said.

“Why can’t a bank like that of the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries? It’s difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency.”

Data from global payments platform SWIFT shows the Chinese currency’s share of trade finance has more than doubled to 4.5 percent since the Ukraine war began last year, largely on the back of a boom in shipments between Russia and China.

Maggie Wei, an economist at Goldman Sachs, said there were structural reasons to expect a growing Chinese share of global trade finance.

“In light of the renminbi’s comparatively small role in trade finance relative to China’s market share of around 15 percent in global goods trade . . . it makes sense for the currency’s share of trade finance to continue rising,” Wei said.

The insurance of a BRICS currency will be debated at the next BRICS summit, which will be held in South Africa in August, according to statements from a Russian State Duma official.

Russia and Iran are also finalizing an agreement to deepen their trade collaboration, avoiding the crippling sanctions that the U.S. has enacted against them.

Asked about the possibility of using frozen Russian assets to rebuild war-ravaged Ukraine after Moscow’s invasion, Yellen said that “Russia should pay for the damages that it’s caused.”

But she noted there are “legal constraints on what we can do with frozen Russian assets, and we’re discussing with our partners what might lie in the future.”