Is the US dollar facing a long-term threat? It has been more than two years since Russia launched its invasion of Ukraine. The war's costs are accumulating, and the Eastern European military conflict is at a stalemate. To fund Kyiv's "resistance" and cover the country’s post-war reconstruction tab, the United States and Europe have proposed seizing Russia's assets and shipping proceeds to Ukrainian President Volodymyr Zelensky. Despite fears of committing regicide against the king dollar, Washington is convinced nothing substantive will happen.
‘Russian’ to Kill the US Dollar
The European Union has drafted legislation to apply a windfall tax on profits from frozen Russian sovereign assets. The immobilized reserves would help supply weapons to Ukraine and bolster the nation's defense industry to the tune of roughly $3.3 billion per year. In the last couple of years, approximately $300 billion in Russian central bank assets, such as cash and securities, have been frozen by the G7, the EU, and Australia.
This comes after the US administration endorsed a similar congressional proposal. In January, the Senate Foreign Relations Committee overwhelmingly approved (20-1) the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act. While the legislative pursuit targets the Kremlin, it would be the first bill to see the United States confiscate another country's assets despite not being at war. A National Security Council memo, leaked to the press, confirmed that the White House agreed with the language “in principle.”
Ahead of a meeting between G20 finance ministers and central bank governors in February, Treasury Secretary Janet Yellen endorsed appropriating Russian central bank assets to fund Ukraine's military operations and post-war reconstruction. She told reporters:
"It is necessary and urgent for our coalition to find a way to unlock the value of these immobilized assets to support Ukraine’s continued resistance and long-term reconstruction. I believe there is a strong international law, economic, and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability.”
Yellen added that confiscating Russia's assets would send a direct message to President Vladimir Putin that "Russia cannot win by prolonging the war and would incentivize it to come to the table to negotiate a just peace with Ukraine.” When asked if this could potentially amplify de-dollarization efforts on the world stage, Yellen shrugged off these concerns by alluding to the US dollar hegemony in global financial markets. The former Federal Reserve chief further argued that there is no other immense and realistic alternative to the greenback or the euro.
“I suppose the risk would arise if there were a massive shift away from currencies. But I think that is extremely unlikely, especially given the uniqueness of this situation, a situation where Russia is brazenly violating international norms,” Yellen stated.
Is the Buck Under Threat?
For the past decade, China and Russia have led efforts to reduce exposure to the US dollar. Since 2022, this initiative has accelerated with the BRICS coalition (Brazil, Russia, India, China, and South Africa) expanding bilateral trade settled in local currencies rather than dollars. As the organization of emerging markets, which account for a considerable share of global GDP and world population, increased the number of members, legitimate fears have been that the dollar’s long-term hegemony could be threatened. Put simply, the dollar, perhaps in the next 30 years, would no longer be the chief international reserve currency.
The greenback's demise is not likely to happen overnight. Consider this data point from the International Monetary Fund's Currency Composition of Official Foreign Exchange Reserves: The US dollar accounts for approximately 55% of global reserves. The next closest is the euro (18%), followed by the Japanese yen (5%) and the British pound sterling (4.5%). The Chinese yuan's share represents about 2%.
However, for Moscow and Beijing, it is baby steps. The yuan's prevalence in international trade is rising. Recent data suggested that the yuan was the fourth most used currency in global payments, growing to a record high of 4.61%. This makes sense when you look at various events. In Russia, for example, the yuan is represented in more than two-thirds of trade.
What does this have to do with Ukraine? At the beginning of the war, Liberty Nation reported on how various economists, analysts, and even bank CEOs sounded the alarm that the fast and furious approach to isolating Russia from international commerce and seizing its assets would lead to unintended consequences, primarily more foreign governments, especially those who poke the great American bear frequently, to ditch the buck.
If adversaries believe they are next on the US-led hit list, they would be incentivized to diversify their assets by decreasing the number of dollars in their investment portfolios. For now, foreign holdings of US debt, for instance, have held steady. Despite China’s year-long decline, Beijing added about $34 billion in January to $816 billion. Saudi Arabia bolstered its total by roughly $13 billion last year to $131 billion. Is this because of the high Treasury yields?
The world is watching, realizing if the Western allies can punish Moscow as swiftly as they did, why would Washington stop there? US foreign policy is fickle, and the intelligence community is quick to tergiversate on who is a friend and who is a foe. The post-World War II environment is filled with examples of US-led regime change when those in charge changed their minds on who they liked and disliked faster than a fifth-grader’s crush.
Backed by Nothing?
When critics assert the US dollar is nothing but a piece of paper without any backing, they are incorrect. Military might, foreign interventions, and the weaponization of the financial system are the backbone of the almighty greenback. Argentine President Javier Milei is proving to the world that you can do what you want in your country, even tell off the globalists and socialists to their faces, as long as you anoint king dollar to your currency throne.
