Russian President Vladimir Putin, left, and Trump during G-20 in Osaka, June 28, 2019.
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It is remarkable that this administration so far fails to recognize that it is doing at least as much damage to the dollar's credibility as any nation planning to circumvent its use. Washington never learns, it seems. Even before the Europeans unveiled Instex in Osaka, the Treasury Department had already threatened to sanction the system's sponsors and anyone who uses it.
The speed with which other nations now seek alternatives to the dollar is also a remarkable feature of the de-dollarization phenomenon. Competition among reserve currencies has long been a recurring topic in financial markets. But until now the end of dollar hegemony has commonly been considered a far-off development unlikely to occur in the lifetime of anyone now living. This is no longer likely to be so.
It is important, however, not to read too much into Instex and other recent developments. The dollar is not balanced on any precipice of imminent decline. It still accounts for roughly two-thirds of global foreign exchange reserves, according to the International Monetary Fund. A far higher proportion of international transactions are still conducted in the U.S. currency. It remains likely that a serious challenge to dollar hegemony is still a matter of a decade or more in the future.
But this challenge is now coming. This is how the news from Osaka, Instex, the recent SinoRussian agreement, and the efforts of the BRICS are best understood; as the first steps in the mounting of this challenge. Washington's defense against it will be fierce, harming the lives of many.
The dollar is the cornerstone of American power. The use of this power, at its most brazen and crude the sword out of the sheath is evident now in the sanctions wars. The U.S. can bring any nation it wants to its knees. It can freeze the assets of any entity that is invested in the U.S., has deposits in the U.S., or buys U.S. Treasury paper. Being the world's sine qua non reserve currency puts the U.S. at the center of global commerce and induces dependence in reverse; everyone needs access to the dollar.
The currency's decline, when it begins in earnest, will be a good measure of the American empire's passing into the past.