U.S. Treasury Secretary Janet Yellen recently attributed the dollar’s weakening position to the country’s persistent use of economic sanctions.
Addressing the House of Financial Services Committee on Tuesday, Yellen suggested that America’s reliance on sanctions as a foreign policy tool prompts global shifts away from the dollar, which could undermine the currency’s global dominance.
Sanctions driving De-dollarization efforts
Yellen highlighted that America’s aggressive sanctioning strategy has sparked a global trend towards de-dollarization. She argued that as the U.S. continues to impose sanctions, it encourages nations to diversify their currency holdings, thus eroding the dollar’s standing in international trade.
This trend is particularly evident in the strengthening financial relationships between countries like Iran, Russia, and India, which are now conducting transactions without using the dollar.
The movement away from the dollar is wider than in these nations. Yellen noted that several countries increasingly view the dollar as a liability rather than a stable reserve currency. This sentiment was underscored by recent remarks from leaders in Russia, China, and Hungary, who have criticized the United States’ economic policies, labeling them as “economic terrorism.”
Future economic predictions
The shift away from the dollar is part of a broader realignment in global economic power. According to Goldman Sachs, the economic rise of the BRICS nations (Brazil, Russia, India, China, and South Africa) suggests that by 2075, India and China could surpass the United States as the world’s leading economies. This forecast significantly reshapes global economic standings, with developing nations expected to excel in trade, technology, and financial technology (fintech).
Furthermore, despite not being a member of the BRICS, Saudi Arabia is also anticipated to experience substantial economic growth, potentially reaching a GDP of $6.1 trillion. This comes amid tension between Saudi Arabia and Western powers over the handling of Russian assets amid ongoing global conflicts.
Yellen’s testimony underscores a critical junction for U.S. economic strategy. It suggests that without reassessing its approach to sanctions and international policy, the U.S. may face increasing challenges to its economic dominance. This development calls for a strategic review of U.S. foreign policy tactics to mitigate the risks associated with the global move away from the dollar.