We’ve been warning for years about efforts of Russia and China to escape what they call “dollar hegemony” and create a new financial system that does not depend on the dollar and helps them get out from under dollar-based economic sanctions. These efforts include buying gold, selling U.S. Treasury securities, buying more special drawing rights (SDRs), developing cryptocurrencies, organizing ruble-yuan currency swaps and other measures.
Lately, they have been receiving support from Iran, Turkey, North Korea, Brazil and other countries also looking to escape the dollar system. Meanwhile, Europe remained a faithful partner to the U.S. and the EUR/USD cross-rate was the closest metric the global system had to an anchor, albeit with extensive volatility.
Now, Europe is also showing signs it wants to escape dollar hegemony. This article describes a speech by the German Foreign Minister calling for a new EU-based payments system that is independent of the U.S. and SWIFT and would not involve dollar payments.
The impetus for this is the new sanctions imposed by the U.S. on Iran. European companies and countries that violate these sanctions can be punished with denied access to U.S. dollar payment channels. Europe’s solution is to create new non-dollar payment channels.
It’s one thing when your adversaries turn away from you. It’s another when your friends do likewise. This is one more sign that dollar dominance in global finance may end sooner than most expect.
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