Treasury Secretary Janet Yellen acknowledged in a recent interview that the use of financial sanctions against Russia “could undermine the hegemony of the dollar” in the long run.
Despite this, she emphasized that no other currency is currently prepared to take on the role of the world reserve currency that the U.S. dollar holds.
Yellen’s comments came during a discussion with CNN’s Fareed Zakaria about the efficiency of the anti-Russia sanctions and the potential consequences of the “weaponization of the dollar.”
Zakaria questioned whether the current period would be remembered as the beginning of the dollar’s decline in status as a reserve currency.
Yellen responded by stating that while the use of financial sanctions could weaken the dollar’s dominance, the U.S. government is using this “important tool” with caution and the support of its allies.
“There is risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar,” she said, adding that implementing sanctions against Russia “does create a desire on the part of China, of Russia, of Iran to find an alternative.”
Brazil’s President Lula da Silva and other politicians have expressed concerns about dependency on the U.S. currency.
Yellen explained that the U.S. dollar’s role is supported by factors such as the size of the U.S. treasuries market, its widespread use in international trade, and the rule of law in the U.S., which other countries cannot provide.
She said, “We haven’t seen any other country that has this basic infrastructure and institutional infrastructure that would enable its currency to serve the world like this.”
Some critics of the U.S. dollar’s dominance advocate for a transition to regional currencies rather than replacing the dollar with another global reserve currency.
Russia’s leadership, for instance, has emphasized moving away from the dollar.
Supporters of a multipolar financial system argue that the absence of a single global reserve currency would be a natural development, with recent sanctions against Russia accelerating the process.
