Prabir Purkayastha in CounterPunch: Do the Ukraine war and the action of the United States, the EU and the UK spell the end of the dollar as the world’s reserve currency? Even with the peace talks recently held in Turkey or the proposed 15-point peace plan, as the Financial Times had reported earlier, the fallout for the dollar still remains. For the first time, Russia, a major nuclear power and economy, was treated as a vassal state, with the United States, the EU and the UK seizing its $300 billion foreign exchange reserves. Where does this leave other countries, who also hold their foreign exchange reserves largely in dollars or euros?
The threat to the dollar hegemony is only one part of the fallout. The complex supply chains built on the premise of a stable trading regime of the World Trade Organization principles are also threatening to unravel. The United States is discovering that Russia is not simply a petro-state as they thought but that it also supplies many of the critical materials that the U.S. needs for several industries as well as its military. This is apart from the fact that Russia is also a major supplier of wheat and fertilizers.
Seizing Russia’s funds means that the faith in the United States as the world’s banker and in the dollar as the global reserve currency is in question. Why should countries maintain any trade surplus and bank it abroad if that surplus can be seized at will through sanctions imposed by the West? The promise of a dollar as the world’s reserve currency was that all surpluses in dollars were safe. With the seizure of the Afghan central bank’s $9.5 billion, and allocating $7 billion out of it, the United States has shown that it considers the dollar reserves of another country, held by the United States’ central bank, as its money. It may be an economic asset in the books for a country to maintain its currency reserves with the U.S. central bank. But it is effectively a political liability, as the U.S. government can seize this asset at will. The United States has earlier shown its capability of imposing sanctions against countries such as Iraq, Libya and Venezuela and seizing their assets that resulted in far-reaching negative impacts for these countries. The seizure of Russia’s foreign exchange reserves by a handful of Western countries—ex-colonial and settler-colonial states—shows that the so-called rules-based order is now based on weaponizing the dollar and the West’s control over the global financial system.