Treasury Secretary Janet Yellen stated during her annual hearing before the House Financial Services Committee on Tuesday that US sanctions are forcing several countries to explore alternatives to the dollar for settlements.
When asked about the risk of de-dollarization, Yellen admitted that the dollar’s use in the global economy is declining.
“It’s not surprising that countries concerned about the impact of our sanctions are looking for alternatives to the dollar.” “It’s something we just have to expect,” she said.
When asked by Congressman Vicente Gonzalez whether the US should use fewer sanctions in foreign policy given that even traditionally allied countries, such as France, have been conducting non-dollar transactions, Yellen stated that she sees “no meaningful workaround” to using the dollar for most countries. She admitted that global reserve assets are increasingly diversifying away from the dollar, but she believes the dollar will continue to be the dominating currency.
“We can expect a gradually rising share of other assets in countries’ reserve holdings over time – a normal desire to diversify… However, the dollar plays the function that it does in the global financial system for very excellent reasons that no other country can mimic… It will be difficult for any country to find a method to avoid the dollar, according to Yellen. Among the dollar’s primary characteristics, according to Yellen, are “deep liquid open financial markets, strong rule of law, and an absence of capital controls,” which “no country is able to replicate.”
Over the last year, an increasing number of countries have begun to shift away from the greenback in trade settlements due to Washington’s pervasive use of sanctions. For example, Ukraine-related sanctions on Russia, which froze half of its reserves and hindered Russian banks’ capacity to execute transactions via the SWIFT messaging system, compelled Moscow to settle with foreign partners in national currencies.
China, which has been at odds with Washington over export limits, has also increased the yuan’s proportion of trade settlements. Currently, nearly all energy trade between Russia and China is performed in yuan, and China’s national oil giant CNOOC recently concluded its first yuan-settled LNG trade with TotalEnergies of France.
