Gains the United States Derives from the US Dollar's Continued Global Reserve Status

·       The hegemony of the US dollar as a global reserve currency, which constitutes 59% of total global reserves, functions as an American whip that the United States uses to entrench its influence in the world through a system of sanctions administered by the US Department of the Treasury and other ministries. This system advances the financial, political, and security interests of this sole pole, strengthening its strongest presence in the world, and affects individuals, groups, entities, and all countries across the globe.

·       These sanctions have not been limited to states hostile to the United States alone; American harm has extended to include friendly and allied countries. For example, we saw how the United States, wielding the stick, won the submarine deal for Australia in the last quarter of 2021, despite Australia’s signing of contracts with France in 2016 worth more than $36 billion USD....!

·       There are many examples. It is evident, as reports indicate, that the United States bears indirect responsibility for the destruction of the Russian Nord Stream 2 gas pipeline in Northern Europe, with the aim of severing the link between Russia and the European Union countries and erasing any notion or hesitation about restoring economic relations between EU states and Russia regarding Russian energy supplies. It should be noted that Russia accused Britain, which previously left the European Union, of carrying out these explosions of the energy supply lines in the depths of the oceans..! ..

·       Another example in this regard is Turkey, where the United States imposed financial sanctions on Turkey as punishment, even though it is a strong state in NATO. The reason was Turkey’s desire to replace some American and Western weapons, especially anti-aircraft missiles, with Russian S 400 weapons, and the subsequent depreciation of the Turkish currency and the resulting disruption to the Turkish economy at that time....!

·       US sanctions have not been confined to the US Department of the Treasury; there is also the State Department and the Department of Justice, as we noted earlier, both of which maintain lists for classifying the status of individuals, entities, and countries around the globe and which regulate international behavior and impose sanctions and prohibitions on dealings according to the whims and interests of the United States..!

·       On this very point, the American magazine "The New Republic" published a report in which the authors David Adler and Daniel Bessner stated that two days after the assassination of Iranian General Qassem Soleimani by an American drone outside Baghdad International Airport, the Iraqi parliament approved a non-binding resolution to expel the US military from its country.

·       The US State Department refused to accept the parliament’s decision, and US President Donald Trump at the time threatened to impose sanctions on Iraq because of this decision. To ensure Iraq’s continued acceptance of the US presence, the State Department resorted to the power of the US dollar, through which it exerts great control over the supply and distribution of dollars as the global reserve currency, and threatened to prevent Iraq from accessing its account at the Federal Reserve, which would effectively paralyze the Iraqi government’s ability to provide basic services. One official in Baghdad believes that faced with this threat, which would cause Iraq’s collapse, the Iraqis withdrew their call for US forces to withdraw, and it appears that the US military will remain in the country indefinitely.!

·       This case of Iraq is a clear example that demonstrates the dollar’s standing at the international level, as it represents the foundational pillar of the United States’ military hegemony, encouraging its expansion throughout the world and facilitating it.

·       The global presence of the dollar gives the United States a powerful tool in foreign policy; however, the excessive use of sanctions carries substantial long-term risks because it may encourage US allies and trading partners to reduce their reliance on the dollar. It could also lead to the creation of an alternative financial system, which would undermine the goals and mechanisms through which the current sanctions regime operates. The author cited a set of mechanisms that countries have resorted to in order to bypass the US sanctions imposed on certain states, including the Instrument in Support of Trade Exchanges (INSTEX), which the European Union developed to preserve trade channels with Iran after the United States withdrew from the Joint Comprehensive Plan of Action and reimposed sanctions. Although that mechanism is likely to fail to achieve tangible economic results, it reveals "a trend that is growing toward creating a parallel financial architecture that excludes the dollar." More dangerous, however, is China’s pursuit of creating a state-backed digital currency that can obscure identities and thus shield participants from sanctions, providing an alternative means for goods and funds to move across borders, which gives companies a reliable alternative to the international financial system and undermines a key advantage of reserve-dollar status.

·       Incounterbalancetothisdollarhegemony....!, the BRICS countries (China, Russia, India, Brazil, and South Africa) are attempting to establish institutions that break the monopoly of the IMF and the World Bank, which are controlled by the West—especially the United States, which carries the greatest weight in decision-making on the Board of Executive Directors of these two global institutions and which, as noted above, serve as channels for the United States to exercise influence and wage economic wars in the world according to its interests. As observed in relation to the Russian-Ukrainian war, the West led by the US has imposed an almost comprehensive ban that has impeded Russia’s movement internationally and hindered its domestic capacity to develop its economy, despite Russia’s measures that attempted and continue to attempt to mitigate the effects of those comprehensive sanctions and to change the equations by creating international alliances to break the protection of the costly dollar privilege..!

·       And because all countries retain— to one degree or another— large amounts of US currency as reserves they need to finance their trade and investments, such as China, various countries, particularly those with large dollar reserves, have no interest in disposing of them rapidly in a way that would cause market panic and lead to a dramatic collapse in the dollar’s price, threatening the value of their reserves. Hence, gradually and calmly reducing dollar reserves in favor of other alternatives on the one hand, and establishing regional and international financial institutions that end the system of hegemony on the other, may be among the most appropriate ways toward building a new international monetary system in which the dollar is one of the pillars rather than the controller—!—so that the central importance of the dollar to international trade and finance is also diminished... countries would diversify their currency reserves and expand bilateral trade in currencies other than the dollar..!

●      On 4-2-2021, Alex Entz, a former analyst at the Federal Reserve Bank of New York, prepared an analytical article on the future of the dollar. The following is a summary of that important article:

·       Gains that the United States derives from the dollar’s status as a global reserve currency:

-        First: Strengthening the United States’ financial position:  Central banks around the world, especially those in developing countries, seek to hold dollar-denominated assets that can be sold easily to purchase their own currencies and support their economies in times of crisis. As a result, most of the foreign currency reserves held by non-US central banks are in dollars. These massive purchases create enormous demand for US Treasury securities, which raises their prices; at the same time, the United States benefits from virtually unlimited returns on those securities thanks to the intensive foreign use of the dollar in conventional currency transactions.

-        Accordingly, if another currency were to replace the dollar, this would reduce demand for private and public US debt by encouraging investors to buy assets denominated in another currency, which would lead to higher US interest payments on debt and harm the US financial position.

-        Secondly: a bulwark to protect the American economy: The supremacy of the dollar protects the American economy from shocks emerging abroad. Regardless of the state of the global economy, the dollar is seen as an attractive investment. When the American economy is strong, investors pour money into the American market, increasing demand for the dollar and strengthening the currency; indeed, when the global economy is weak, investors also push money into the American market, likewise causing the dollar's value to rise. The strong position of the dollar insulates consumers in the United States from global market volatility and protects their standard of living. At the start of the (COVID-19) pandemic the dollar rose by 8% even as other major currencies collapsed, and the United States printed massive amounts of liquid dollars reaching up to 3 trillion dollars to run American life and compensate losses during the Corona period in 2020..!

-        Third: improving the competitiveness of American companies: The supremacy of the dollar — on another level — works to improve the competitiveness of American companies, since American companies do not usually need to hedge against exchange rate movements. This applies particularly to companies that issue debt in dollars, as they do not face problems of currency mismatch..!

-        Fourth: a tool for exercising global influence: In addition to all of the above, the dominance of the dollar is a powerful tool for exercising global influence and achieving the United States' foreign policy objectives, especially in multilateral financial institutions that oversee the global financial system. These institutions, notably the International Monetary Fund (IMF) and the World Bank, have served as channels for the United States to exert influence through the rules-based system against the most authoritarian competitors, foremost among them China

-        Fifth: waging economic wars: Dollar dominance is coupled with the ability of the United States to wage economic wars. Currently, the U.S. Treasury runs more than 30 sanction regimes that target a group of countries, led by North Korea and Iran among others. Sanctions programs freeze the assets of sanctioned individuals and entities, and companies and banks that deal with a sanctioned entity are subject to huge fines, which encourages them to avoid dealing with it. At the same time, foreign entities that deal with sanctioned entities are prevented from accessing the U.S. financial system. The sanctions imposed primarily by the United States and Western countries generally are the best proof of how severe and dangerous the weapon of sanctions against states is, regardless of their international standing, although bypassing such sanctions is possible, but it requires time and the concerted efforts of states with Russia to create an alternative to the mighty dollar system...!

-        In fact, if the dollar were to lose its position as the dominant currency, it would lose the aforementioned advantages, although the dollar's status as a global reserve currency may bring great risks, as the status of the global reserve currency creates a tendency toward increased private and public debt, which may lead to credit waves. The boom in credit that fueled the wave of property purchases and mortgages in the mid-first decade of the twenty-first century led to the worst recession in 80 years. With the recent spread of the pandemic, many central banks were forced to devalue their currencies, which made repayment of existing dollar-denominated debts more difficult. Therefore, it is expected that dozens of countries will face debt crises within the coming years.....

·       Source

●      ( “ The future of the Dollar” The National Affairs" , No. 45, Fall 2021, pp 83-99 )