Opinion | Ukraine war: sanctions on Russia show the power of a weaponised US dollar

Name: How international sanctions imposed since Ukraine invasion are hitting Russia
Uploaded: 2022-03-25T17:30:18.000Z
Duration: 4 min 1 s
Description: How international sanctions imposed since Ukraine invasion are hitting Russia

While Russia engages in physical war, the United States and its allies are engaging in a proxy war through sanctions and supplying aid to Ukraine

Money is at the root of all success in warfare – you fight for money, and you need money to fight

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A Russian rouble coin is pictured with US dollar bills and a US$1 coin in Moscow, on March 15. The dollar benefits not just the US but also its users, who create an ecosystem that entrenches its superiority. Photo: AFP

Andrew Sheng

Published: 1:30am, 26 Mar 2022Updated: 2:17am, 26 Mar 2022

The war in Ukraine is clearly a game-changer. It has upended many assumptions on who is strong militarily and who is weak in the media war. It will be remembered as the end of the peace dividend era, when the world enjoyed decades of global peace and stability without major wars.

China could not have risen without the peace dividend. Russia and Ukraine are now facing a war that will eat into their social and economic fabric. No one will win until both sides negotiate a pathway to peace.

Geopolitical strategist George Friedman said the biggest lesson from the current war has nothing to do with Russia or Ukraine; rather it was that “the United States has demonstrated that perhaps the most powerful weapon in the world is the weaponised dollar”.

The physical war is being fought by Russia and Ukraine while the US and Nato are engaging in a proxy war, using financial sanctions and supplying arms to help Ukraine fight to the last. As the US dollar accounts for about 40 per cent of global trade invoicing and about 60 per cent of official reserves, there is no question it has more clout than the euro, yen or yuan.

The fact that the European Union and Japan joined the sanctions means Russia finds it hard to evade sanctions or escape a liquidity crunch, not just in foreign exchange but also domestically. As Friedman observed, “The combination of banning Russian energy imports to the US and managing the dollar as a weapon – in concert with a large alliance – poses an unanticipated military crisis for Russia.”

04:01

How international sanctions imposed since Ukraine invasion are hitting Russia

Why does the US dollar have such advantages? The standard argument is that it is a unit of account for global credit and invoicing, a means of payment and store of value, bringing the issuer privileges by being able to issue currency at will.

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