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US sees dollar bruised around the world, but not beaten
US sees dollar bruised around the world, but not beaten

Washington, May 6 : Just days after US Secretary of Treasury Janet Yellen acknowledged that the use of sanctions ran the risk of undermining the "hegemony" of the dollar in April, the Biden administration announced new sanctions against Russian and Iranian entities for illegally detaining Americans.

The US is aware of the downsides of sanctions, which it tends to use as a foreign policy weapon, but officials and experts have indicated that they believe the dollar is not likely to be upstaged by any one currency or a bunch of them any time soon because, among other reasons, there are no alternatives.

"Where are they going to move?" Larry Summers, a former treasury secretary, asked in an interview with Bloomberg end-April. The euro cannot become an alternative as long as the US collaborates its sanctions with Europe, which it has. And for "anybody who's looking for political stability, who's looking for predictability, who's looking for the nonpartisan, objective adjudication of their claims -- are they really going to hold large quantities of assets in RMB," he said referring to the Chinese currency Renminbi. "I doubt it."

The dollar has indeed lost status as a currency for global trade and exchange. Its share of the global foreign-exchange holdings had fallen 58 per cent, its lowest since 1995, the International Monetary Fund said in April. Some experts have offered a more dire and precipitous version of the dollar's decline.

Washington DC sees the de-dollarisation as a decades-long effort by Russia and China chiefly, to insulate their economies from US sanctions (of which there have been plenty), reduce exposure to the effects of US economic and monetary policy, and assert global economic leadership, as stated in a report prepared by the Congress Research Service (CRS), an autonomous body that provides research guidance on policy issue to US congress.

De-dollarisation efforts by Russia and China figured in several CRS reports directly and indirectly on US ties with the two countries and between them. One report from 2021 noted that these efforts have "minimal changes to date", but, it warned, "if they are able to more significantly reduce their use of the dollar in the future, for example by expanding non-dollar trade or developing a digital currency, there could be implications for the United States."

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