US Treasury Secretary says the economic sanctions imposed by US on countries have put dollar’s dominance at stake

Janet Yellen, the US Treasury Secretary, has expressed concern that the widespread use of economic sanctions by the US against countries worldwide could potentially undermine the dominance of the US dollar. Yellen noted that as the US continues to impose sanctions, targeted nations are seeking alternatives to the dollar, which puts the currency’s supremacy at risk.

She acknowledged that sanctions were an important tool for the US and its allies to use, but added that there is a risk that it could eventually erode the hegemony of the dollar. Yellen’s remarks come after the US Treasury and State Departments recently imposed sanctions on nearly 120 targets, including firms in China, Turkey and the UAE, in response to Russia’s ongoing war with Ukraine.

The US has used the dollar as the world’s reserve currency since 1944, which has granted it significant influence over other economies. However, de-dollarisation has begun, particularly since the Russia-Ukraine war. Many nations are considering alternatives to the dollar, and the trend is expected to continue this year. India recently signed an agreement with 18 countries to trade in Indian rupees, and New Delhi announced an agreement with Malaysia to start trading in INR.

Iran has abandoned the use of the dollar in its trade with China and Russia, while Saudi Arabia has said it will accept PetroYuan and abandon the PetroDollar. China is actively promoting the use of the yuan as an alternative to the dollar, and Russia is also increasingly using the yuan in international trade.

An IMF report shows that the global foreign-exchange reserves held in dollars fell below 59% in the final quarter of 2021, and the trend is expected to continue. While Yellen acknowledged that the dollar is used as a global currency for reasons that are difficult for other countries to find alternatives with the same properties, her warning suggests that the situation may have become more precarious.

China has criticised the US’s sanctions, calling them an ‘illegal’ move that seriously damages the legitimate rights and interests of enterprises and affects the security and stability of the global supply chain.