The U.S. dollar and U.S. control over the dollar payments system are two of the most powerful weapons in the U.S. strategic arsenal. Over 60% of global reserves and over 80% of global payments are in U.S. dollars. All of those dollars have to be cleared and settled in one of a few dollar wire systems and clearinghouses such as Fed Wire, SWIFT, and the Clearing House Association.
All of these systems are controlled by the U.S. and its allies or their regulated financial institutions. When the U.S. imposes financial sanctions on an adversary like Russia by cutting off access to dollar payments, it’s like cutting off the oxygen to a patient who can’t breathe on his own. The U.S. can destroy an enemy’s economy just as effectively with dollar sanctions as with bombs and missiles.
The problem is that the dollar weapon is so powerful, the U.S. has a tendency to use it too frequently, and for non-critical purposes. Emerging markets are growing tired of U.S. sanctions and are working hard to develop alternative currencies and payment systems that do not rely on dollar or existing settlement channels.
This will take time, but in the end the U.S. may find that the role of the dollar is greatly diminished due to the rise of alternative payment systems. Click here to read how, by overusing the dollar weapon, the U.S. will destroy that weapon and the dollar itself in the end.
– Jim Rickards, Chief Global Strategist, Meraglim