The United States government has been using the dollar as a convenient weapon of choice to preserve its global economic and geopolitical position for many decades.
This has been evident through illegal sanctions for Iran, Russia and Venezuela, as well as members of the Organization of the Petroleum Exporting Countries (OPEC).
For instance, in the last week, and in a response to a potential passage of the bipartisan No Oil Producing and Exporting Cartels Act, known as NOPEC, in Congress that would enable the US Justice Department to sue OPEC for coordinating production, Saudi Arabia threatened to sell its oil in currencies other than the dollar. It said the plan had been discussed with OPEC members and that Riyadh had communicated the threat to senior US energy officials. Then later, Riyadh denied the report that it was threatening to sell its oil in currencies other than the dollar for passing NOPEC.
The implications of this new development are immense. The chances of the US bill coming into force might be slim and Saudi Arabia might not follow through. But that Saudi Arabia now claims it never considered such a drastic step is a telltale sign of the kingdom’s growing concern about Washington’s potential use of that convenient weapon to exert pressure, freeze assets, and challenge OPEC members.
During this process of reflection, Washington has weaponized the dollar anyhow, and this has prompted many countries to consider abandoning it as a medium of world trade. Russia, Iran and China have been trading in national currencies to weaken Washington’s ability to enforce illegal sanctions on nation states.
The idea to ditch the dollar has also gained momentum in Europe since US President Donald Trump came to office. Trump has waged tariff wars against Canada, Mexico, the European Union and China. His assault on the global trading system has backfired and these countries have decided to move and diversify their trade away from the dollar in order to minimize the negative impacts of US tariffs.
Russia, which is subject to illegal sanctions, is selling oil in euros and China’s yuan, and the proportion of its sales in those currencies has become significant in recent years. Venezuela and Iran, which are also under US sanctions, sell most of their oil in other currencies and have switched to non-dollar trading systems, even barter.
Likewise, several commodity-producing countries want to follow through and join the club of non-dollar traders – from lending to exchange clearing, and through yuan, euro and ruble pricing. This could include trading in derivatives such as oil futures and options, which is still dollar denominated. When this happens, and it will happen, as many nations are opposed to the US dollar as the world’s reserve currency, the rest of the world market will follow suit to operate in a non-dollar environment.
The moment, therefore, is ripe for the world market to move trade out of the US currency and into other currencies in settlements. In today’s multilateral world, it has become increasingly irritable for nations to purchase securities, goods and services in the US dollar.
They want to opt for national currencies and ditch the greenback as a currency in their trade. This has become the new policy for countries like Iran which has no access to dollar-dominated SWIFT transactions because of the US sanctions.
Removing the US dollar as an export and import payment currency has made life easier for Iran, for those who want to buy the Iranian oil, and for those who are under Western sanctions. They have largely quit the dollar as a transaction currency and replaced it with national currencies.
Other commodity-producing countries could and should stop using the US dollar in global trade as well. They could use national currencies to reduce dependence on the greenback. This way, they can curb their exposure to dollar movement risks and the effects of illegal US sanctions and trade wars which typically feature cutting off their access to international trade and dollar-dominated transactions.