Ukraine war ignites global backlash against hegemony of US dollar

By Michelle Jamrisko & Ruth Carson

All around the world, a backlash is brewing against the hegemony of the US dollar.

Brazil and China recently struck a deal to settle trade in their local currencies, seeking to bypass the greenback in the process. India and Malaysia in April signed an accord to ramp up usage of the rupee in cross-border business. Even perennial US ally France is starting to complete transactions in yuan.

For many global leaders, their rationales for taking these measures are strikingly similar. The greenback, they say, is being weaponised, used to push America’s foreign-policy priorities — and punish those that oppose them.

Nowhere has that been more evident than in Russia, where the US has brought unprecedented financial pain to bear on Vladimir Putin’s regime in response to the Ukraine war. The Biden administration has imposed sanctions, frozen trillions of dollars of Moscow’s foreign reserves, and all but ousted the country from the global banking system. For much of the world, it’s been a stark reminder of their own dependency on the dollar, regardless of what they think of the war.

Undoubtedly, part of the shift away from the dollar is being orchestrated by China. President Xi Jinping is seeking to carve out a bigger role for the yuan in the global financial system, and his government has made expanding the currency’s use abroad a priority. Yet much of the push is happening without its involvement.

India — hardly a strategic ally of China — and Malaysia in April announced a new mechanism to conduct bilateral trade in rupees. It’s part of a broader effort by the Narendra Modi administration to bypass the dollar for international transactions. 

The currency’s centrality to the global payments system also allows America to wield unique influence over the economic destiny of other nations.

About 88 per cent of all global forex transactions, even those not involving the US or its firms, are in dollars, according to the most recent data from the Bank for International Settlements. Because banks handling cross-border dollar flows maintain accounts at the Federal Reserve, they’re susceptible to US sanctions.

The Biden administration has averaged 1,151 new designations per year to the Office of Foreign Assets Control’s list of specially designated nationals, according to a report from the Center for Economic and Policy Research. That’s up from an average of 975 during the Trump administration, and 544 during Obama’s first four-year term. 

BRICS Backlash

Still, the drumbeat of de-dollarization is continuing unabated in the developing world.

Pakistan is looking to pay for Russian crude imports in yuan, the country’s power minister said last month, while earlier this year the United Arab Emirates said it was in early-stage discussions with India on ways to boost non-oil commerce in rupees.

Earlier this week foreign ministers from the BRICS group of nations discussed how the bloc can win greater global influence, including the feasibility of creating a shared currency.

“Without a doubt, de-dollarization is accelerating and will continue for years to come,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The US made a calculated decision to use the dollar to inflict pain, and there’s likely to be long-term consequences.”