During her yearly appearance Tuesday before the House Financial Services Committee, Treasury Secretary Janet Yellen admitted that many nations are being driven to seek alternatives to using the dollar for international trade settlements by the US sanctions being imposed on Russia due to its military action in Ukraine.
When asked if there is a risk of de-dollarization, Yellen admitted that the use of the dollar in international cross-border trade settlement is diminishing
She stated, “It’s not surprising that countries that are fearing they can be affected by our sanctions are looking for alternatives to the dollar. It’s something that we simply have to expect.”
Congressman Vicente Gonzalez asked whether it would benefit the US to reduce its use of sanctions as a foreign policy tool, given that now even countries the US has traditionally viewed as allies, such as France, have begun using currencies other than the dollar in global transactions, Yellen said that for the majority of countries, she sees, “no meaningful workaround” to settling their obligations in the dollar.
She admitted that there is increasing diversification going on globally away from the dollar within global reserve assets, however she indicated it was her opinion that the dollar will likely retain its status as the dominant reserve currency.
She stated, “We should expect over time a gradually increased share of other assets in reserve holdings of countries – a natural desire to diversify… But the dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate… It will not be easy for any country to devise a way to get around the dollar.”
She noted the major strengths of the dollar are “deep liquid open financial markets, strong rule of law and an absence of capital controls,” which she pointed out, “no country is able to replicate.”
An increasing number of countries have begun to move away from the dollar in trade settlements over the past year as Washington has launched a widespread campaign of sanctions in pursuit of geopolitical objectives. In the case of Russia, Ukraine-related sanctions froze half of its reserves and placed limits on the ability of Russian banks to utilize the SWIFT messaging system, which left Moscow little choice but to utilize national currencies in settlements with foreign partners.
China which has been in a conflict with Washington over export controls, has also been increasing the share of yuan used in trade settlements. Almost all of the trade in energy between Russia and China is currently performed in yuan. Even when trading with traditional US ally France’s TotalEnergies, China’s national oil company CNOOC is now settling its trades in yuan.
