Janet Yellen, the U.S. Treasury Secretary, has cautioned against the continued use of sanctions linked to the U.S. dollar, stating that it could pose a long-term threat to the currency’s dominance in international markets. She recognized that sanctions can create a desire to find alternatives to the U.S. dollar, potentially undermining its hegemony. Yellen acknowledged that such a risk exists, but also emphasized the importance of using financial sanctions judiciously, calling them an “extremely important tool.”
Despite the challenges, countries sanctioned by the Office of Foreign Asset Control (OFAC), such as China, Russia, and Iran, have started developing integration policies to conduct trade away from the U.S. dollar. China and Russia have already begun conducting settlement transactions using the Chinese yuan, while Brazil has called for developing nations to abandon the U.S. dollar and for BRICS to establish a new currency. The insurance of a BRICS currency will be debated at the next BRICS summit, which is set to be held in South Africa in August.
However, Yellen noted that substituting the U.S. dollar will be challenging due to the unique traits of the currency, stating that no other country has the institutional infrastructure necessary to serve the world like the U.S. dollar. This aligns with a report from the Bank of Russia, which found that replacing the U.S. dollar will be difficult due to the current structure of foreign trade.
It remains to be seen how countries sanctioned by the OFAC will navigate this issue in the coming years. However, Yellen’s warning highlights the potential consequences of the continued use of sanctions linked to the U.S. dollar, and the need to consider the long-term effects on the currency’s dominance in international markets.
