THE United States, using its massive economy and the power of dollar as the global currency, easily slaps sanctions on countries it does not like for one reason or the other. Likewise, it passes on all kinds of favours to the countries it likes for one reason or the other. For instance, the US imposed an economic ban on Iran in 2012 in the name of the latter’s alleged nuclear ambitions. Israel, on the other hand, is having great fun all this while despite having similar intentions.
North Korea and Russia also find themselves in the American bad books. The fact that the European Union and the West at large allow the US to lead the joint front only underlines the American hegemony and geopolitical influence that forces even the developed world to directly or indirectly help the US in achieving its national gains at the global level.
History bears testimony to the flaws in the US decision-making process that has left it scratching its head in, say, Vietnam and Afghanistan, or has resulted in utter chaos in the ‘occupied’ lands, like, say, Iraq, Syria, Libya and many others.
The thing to do for the global community is what China, Russia and a few other countries are already doing; trying to find an alternative to the US dollar that dictates global trade. When executed, such a policy will provide an alternative to nations crumbling under US sanctions.
According to the International Monetary Fund (IMF) working paper, ‘The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies’, the biggest source of dollar erosion is yuan, the Chinese currency.
According to America’s prominent and well-known investor James Rogers, “the dollar may have ruled the world for decades, but today it, through its sanctions and its monetary policy, is shooting itself in the foot”.
One might imagine that the fall of the dollar is far, but the process has surely begun. In 2002, the dollar’s share in global central banks, which used to be 71 per cent, dropped to 59pc. The dollar share was at a 25-year low mark on the Global Foreign Exchange Reserves in the fourth quarter of 2020.
The biggest credit for this goes to the rise of other currencies, such as euro and yuan, which is officially called renminbi. Owing to the Russia-Ukraine war, several accounts of top Russian billionaires were frozen as they had to circulate through Federal Reserve Bank of New York.
Therefore, China and Russia have collectively made a system, called the system for transfer of financial messages (SPFS). In 2015, the Chinese central bank launched the crossborder interbank payment system in which 600 banks have participated by now.
Besides, there are a few other elements that indicate a possible fall of the US dollar. The US is a consumer-based economy. With a GDP of $23 trillion and a debt of $30 trillion, it is the largest debtor nation in the world. Even though the US printed dollars in surplus, which is the core issue of immediate inflation, 40pc of existing dollars in the global market were printed during the Covid crisis.
India’s trade in ruble with Russia, and Saudi Arabia’s acceptance of Chinese payment for oil in yuan clearly signify major advances towards controlling the hegemonic power of the US dollar.
In the great game of geopolitics, every blessed favour is linked with some future-based profit. Pakistan’s state institutions should consider these concerns as they will ultimately leave a crucial impact.
The country has to ensure a diplomatic and neutralist stance in the geopolitical arena. Each decision should be made in the national interest so that the struggling economy may survive well in the years ahead.
Sajid Ali Naich
Khairpur Nathan Shah
Published in Dawn, December 15th, 2022