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Macroscope | Sanctions on Russia’s central bank could undermine the US dollar for good
- If central bank assets are no longer inviolate, then countries, especially China, could finally be pushed into dumping reserve dollars and cutting dollar reliance in trade, finance and banking
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The best word to describe the US-initiated move to freeze assets of the Russian central bank as part of a welter of economic sanctions being levelled against the country is quite simply “daft”. It is a case of shooting yourself in the foot – a self-inflicted and hobbling injury.
US President Joe Biden and Secretary of State Antony Blinken could not have done a better job of undermining the international role of the dollar – and therefore that of America’s global economic prowess – if that had been their conscious objective.
As Paul Sheard, research fellow at Harvard Kennedy School’s Mossavar-Rahmani Centre in Cambridge, Massachusetts, told me, “one can only wonder if the Fed and the Treasury were in the room (or had their voices represented) when these momentous decisions were taken”.
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Psychologists are busy trying to determine whether there is “method or madness” in Russian President Vladimir Putin’s decision to invade Ukraine. But similar research should be applied to Biden’s decision to apply crippling sanctions in the currency and commodity markets.
The attack on Russia’s freedom to use its foreign exchange reserves in support of its war effort appears to be particularly ill-considered. At a stroke, the United States may have tipped Russia, China and others into a definite decision to start dumping the dollar and hoarding gold, among other things.
04:01
Biden bans all Russian oil imports and warns of costs for Americans
Biden bans all Russian oil imports and warns of costs for Americans
China, which has the world’s biggest foreign exchange reserves (some US$3.2 trillion as of January this year according to global database CEIC), has long been seeking to diversify out of dollars, which were revealed to have made up 58 per cent of those reserves at end-2014.
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