The United States of America is the sole issuer of the global currency. And its unique position in the world gives it an incontestable upper hand in international trade and policies.
Most countries hold substantial reserves in U.S. dollars, meaning that there is constant demand for the U.S.D. With the majority of international trade transactions, including commodities like oil, being conducted in U.S. dollars, the U.S. has significant leverage in global trade negotiations.
The U.S., which is the largest shareholder in the International Monetary Fund (IMF), according to the U.S. Department of Treasury, and also holds veto power in international financial institutions like the World Bank.
The World Bank and IMF provide financial assistance in regards to loans, grants and trade to countries around the world. The U.S.’s powerful position within these organizations has provided it with another leeway to weaponize the dollar.
This also provides the U.S. a significant say in selecting the leadership within the IMF, along with leveraging its position to impose conditionalities and policies in its favor.
Historically, the United States has used its monetary policies to serve its geopolitical interests. By using economic sanctions excluding countries like Iran and Russia from the global financial system, the U.S. has constantly exerted its dominance on the global stage. Since 1979, Iran has been penalized through both primary and secondary sanctions because of its alleged nuclear program, terrorism ties, and human rights violations.
In spite of an international agreement to help Iran return to stability, according to castellum.ai, as of 2022, Iran is subject to over 451 new sanctions, with 4,191 sanctions in total. The U.S. was also successful in imposing a SWIFT ban on Iran, successfully cutting off channels of safe international transactions. This goes to showcase just how much power the U.S. holds when it comes to international policies.
According to the IMF and the U.S. government, sanctions are placed to create economic hardship for a general population, which would cause political unrest leading to the targeted country changing its problematic policies. However, in most cases like Iran and Cuba, sanctions have raised concerns about human rights violations.
Since the U.S. government re-imposed economic sanctions on Iran in 2018, Iran’s access to humanitarian imports has been severely constrained. According to a 2022 report published by U.N. special rapporteur Alena Douhan, Iranian civilians have faced an even bigger challenge when it comes to access to medicines and medical equipment, with the rate of food insecurity reaching a staggering 60 percent.
In the cases of Iran and most countries placed under sanction, the flow of free information is also infringed, secluding the population further. This report further solidifies the human rights violation concerns.
More recently, Russia is now subject to over 5,000 different sanctions in light of the ongoing Russian-Ukraine war. According to an April 2023 report by the IMF, the Russian economy was forecasted to decline 2.5 percent in its GDP.
While the sanctions were put in place to weaken Russia’s ability to fight a war, their effects have created hardships for civilians around the world in the form of rising gas and crude oil prices.
This has also been hard on the diaspora at Howard University. “I haven’t been able to fly back home in more than a year due to high airfare. Ticket prices are through the roof and as a student, it’s impossible to afford it,” said Kritika Pant, a sophomore at Howard from Nepal.
Post the period of the embargoes on Cuba in 1962, during the Trump administration, the U.S. limited the amount of money that could be sent from Cuban Americans to Cuba as a remittance. According to The Hill, in 2018, $3.7 billion of the island’s source of income was through remittances, with more than 90 percent of the remittances to Cuba being through America.
Along with the limitations in remittance, the U.S. also placed travel restrictions on U.S. citizens traveling to Cuba, which disrupted its tourism industry. The embargoes drastically affected Cubans in their day-to-day lives, especially during the COVID-19 pandemic, when access to medicines and medical equipment was limited.
“I can no longer support my family like I planned, especially my mother, who suffered a stroke earlier this year,” a minimum-wage Cuban worker in Washington, D.C., said, opting to stay anonymous citing concerns about citizenship status.
While sanctions are meant to be temporary and preventative, the nature of the sanctions implemented by the U.S. doesn’t make it feasible to resurrect the country’s economy in the future.
These sanctions placed in developing countries have had ongoing effects for decades with little to no progress toward a stable economy and standing in the international arena. Citizens and governments of countries like Cuba, Venezuela and Iran have been suffering for decades under these sanctions, coercing them further away from globalization.
According to a June 2023 report by JPMorgan, the U.S. dollar’s share in the foreign exchange market has hit a record low of 58 percent. The diminishing shares solidify that the dollar’s dominance as the world’s primary reserve currency is declining.
This change of preference can also be observed in the Yuan, China’s currency, which is seeing a steady incline. This is especially concerning since at the recent BRICS summit, where leaders of Brazil, Russia, India, China and South Africa met as a coalition to discuss issues of mutual interest, there were talks of a new currency to trade in. This currency would allow them to dodge any sanctions placed by the U.S. and trade freely amongst themselves.
“It is possible for a BRICS currency to emerge; it might even make sense for the BRICS and its neighbors to trade in a currency other than the U.S.D, but the stability of the BRICS currency is questionable,” Vaneesha Dutra, associate professor of finance at Howard’s School of Business, said.
The report also says that while there have been signs of “de-dollarization,” it’s not a threat in the near future. Professor Dutra added, “For this to be a real threat, a vast majority of non-U.S. countries would have to reach a mutual agreement on all terms and practically implement a new currency to trade in, which is highly unlikely.”
While many economists agree that a new BRICS currency is not a threat, it still points towards the bigger problem of countries turning away from the U.S. dollar and weakening it. Countries like Saudi Arabia, Bangladesh, Brazil, and Argentina have started phasing in the Yuan for transactions instead of the dollar.
Prof. Dhutra also pointed out that, “To strengthen the dollar, it would have to rise in value against other countries in the foreign exchange market.” While economic sanctions have countries wanting to seek other options to trade in, how heavily the dollar affects the local economy of countries might also be causing disdain in developing countries with a weaker currency, a perfect example being Argentina.
In a world where globalization is connecting people from all corners of the world, the use of the U.S. dollar as a tool for foreign policy raises concerns about various humanitarian issues as well as international peace and relations.
Alternatives to sanctions such as soft power may seem too idealistic, but a more nuanced approach to diplomacy and international cooperation could help the U.S. effectively dodge the effects of de-dollarization and improve its standing in the international arena. Building such policies would help mitigate the problems emerging in countries as well as avoid causing unnecessary harm to the world population.
Copy edited by Alana Matthew