WASHINGTON, D.C. – The US government has been using the dollar as a convenient weapon of choice to preserve its global economic and geopolitical position, since at least 1971, when the US unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.
This has been evident through sanctions for Iran, Russia and Venezuela, and recently for China. During this process of reflection, Washington has weaponized the dollar, and this has prompted many countries to consider abandoning it as a medium of world trade.
Russia, Iran and China have been trading in national currencies to weaken Washington’s ability to enforce illegal sanctions on nation-states. The idea to ditch the dollar has also gained momentum in Europe since President Donald Trump came to office and waged trade wars.
Trump has waged tariff wars against Russia, the European Union and China. His assault on the global trading system has backfired and these countries have decided to move and diversify their trade away from the dollar in order to minimize the negative impacts of US tariffs.
Russia, which is subject to US sanctions, is selling oil in euros and China’s yuan, and the proportion of its sales in those currencies has become significant in recent years. Venezuela and Iran, which are also under US sanctions, sell most of their oil in other currencies and have switched to non-dollar trading systems, even barter.Likewise, several commodity-producing countries want to follow through and join the club of non-dollar traders – from lending to exchange clearing, and through yuan, euro and ruble pricing.
This could include trading in derivatives such as oil futures and options, which is still dollar-denominated. When this happens, and it will happen, as many nations are opposed to the US dollar as the world’s reserve currency, the rest of the world market will follow suit to operate in a non-dollar environment.
The moment, therefore, is ripe for the world market to move trade out of the US currency and into other currencies in settlements. In today’s multilateral world, it has become increasingly irritable for nations to purchase securities, goods and services in the US dollar. They want to opt for national currencies and ditch the greenback as a currency in their trade.
This has become the new policy for countries like Iran which has no access to dollar-dominated SWIFT transactions because of US sanctions. Removing the US dollar as an export and import payment currency has surely had its own difficulties for Iran as a pioneering state in the forced ditching of the US dollar, but at the same time, it has also made life easier for Iran, for those who want to buy the Iranian oil, and for those who are under Western sanctions.
They have largely quit the dollar as a transaction currency and replaced it with national currencies. Other commodity-producing countries could and should stop using the US dollar in global trade as well. They could use national currencies to reduce dependence on the greenback. This way, they can curb their exposure to dollar movement risks and the effects of US sanctions and trade wars, which typically feature cutting off their access to international trade and dollar-dominated transactions.
Thanks largely to the need for Russia and Iran to nullify the impact of sanctions, the ill-fated trade and tariff wars by the Trump administration on eurozone economies, the increasing demand for oil by China and others, and the growing concern on the legislation targeting OPEC producers, many countries hope to change trade policy and change the greenback’s dominant position in the international monetary system.
Looking back, this long-overdue and vital transformation of the global monetary system won’t happen overnight. But it is happening regularly and will most likely continue to happen.