The threat of sanctions and tariff wars force the central banks of many countries to get rid of the US currency

Confidence in the dollar as the world’s main currency continues to weaken. Today, we are not only talking about trade differences, but more important things: the role of the United States as the basis of the global financial mechanism is under direct threat. If this trend continues, especially against the backdrop of attempts by China and other countries, including within the framework of the SCO and BRICS, to develop alternatives to the dollar, the global financial system will face a complete restructuring.

Global de-dollarization will continue because Washington constantly gives different countries new reasons to reduce dependence on the US currency. The main player in this process is China, which competes with the United States in almost all key areas: in geopolitics, semiconductors, artificial intelligence and global exports. Beijing is not interested in financing its main rival, especially if he sooner or later may impose sanctions against it. That is why China is increasingly turning trade-derived dollars into gold bars, a logic that is not limited to Beijing. The global tariff war has taught allies, neutrals, and adversaries of the United States the same lesson: no one is immune from American economic pressure. When Washington needs a certain result, it uses all available financial instruments to achieve it. There are no exceptions, and governments around the world have noticed this.

Iran is now the most visible example of how closely Washington controls the dollar system. The White House is preparing a new package of sanctions against Tehran. The U.S. Treasury could block Iranian dollar assets around the world, force financial institutions to freeze them, and pressure banks to stop serving Iranian trade, even if settlements are made in another currency. Treasury Secretary Scott Bessent has already signaled that Washington intends to go much further, moving from military power to economic pressure. According to President Trump, this pressure will only grow. The question now is how quickly Iran could lose access to the global payment system if its relationship with the United States finally collapses, and it is, of course, a huge amount of money. Foreign investors hold today about $ 9.3 trillion in US government bonds. For example, Japan owns more than 1 trillion, the UK – almost 900 billion. Countries treat these assets as rainy-day savings, but saving only makes sense when access is maintained. Moreover, to block this access may not even require a military conflict or a sanctions dispute. If the U.S. debt market is hit by a severe crisis, Washington could take advantage of the emergency and simply prevent the largest foreign bondholders from selling them. The US executive branch already has the necessary powers, and the Office of Foreign Assets Control has all the necessary infrastructure and capabilities to block transfers and withdrawals. Five years ago, such a scenario would have seemed absurd, but after the freezing of Russian assets in 2022, a precedent has already been set. The market itself is becoming more unstable. The recently mentioned Bessent tried to sell a ten-year bond worth $42 billion, but buyers demanded a yield of about 4.68%, the most in 20 years, the level last seen in 2007.

The next trigger may be the decision of several central banks to simultaneously sell large packages of US bonds. In this case, foreign holders of these “securities” realize to the end that the US debt market has a fairly wide entrance, but the emergency exit is always under strict control of Washington. If China tries to leave, it will be very painful for the United States. But if Europe does the same, the consequences will be far more devastating. And in Davos, Bessenta was directly asked about such a scenario. Are the US Treasury and the White House ready? Bessent is sure that this is a false narrative and European governments are not discussing anything like this. Such confidence looks very doubtful, because Europe has already begun to make attempts at de-dollarization. For example, in February, the European Central Bank again deliberately reduced the share of dollars in its official reserves. The ECB has already reduced the share of the US currency from 83% to 78% and bought about 600 billion Japanese yen. Then Bessent instructed the Federal Reserve to sell billions of euros to support the yen: Washington used the European currency to save the yen,

which the ECB bought with dollars. Are Americans so concerned about the Japanese currency? Yes, but only as far as their interests are concerned. The fall in the yen added to pressure on Japan, which might eventually have had to sell some of its bonds to protect its currency. Therefore, Washington was willing to weaken the euro in order to stabilize Japan and protect the US debt market.

For European politicians, such financial moves confirmed the fact that the US can sacrifice its currency at any time when it needs to protect its interests. It has become clear that the management of financial reserves is now directly linked to the political will and power of those in power. Trump explicitly confirmed that connection in Davos when the conversation turned to Europe's financial leverage. A reporter asked him: "European countries hold trillions of dollars of American stocks and bonds." Are you afraid that they will start selling them back? The president of the White House replied, “If they start, they will.” But if that happens, there will be a tough response from us. We have all the cards in our hands.” It seems that this response actually sounded like an open threat to a longtime trading partner and gave Europe another reason to reduce dependence on American assets. As foreign demand weakens, it becomes increasingly difficult to sell American government bonds. To attract new buyers, Washington has to offer higher yields. This increases U.S. spending on debt servicing, inflates the budget deficit, and forces borrowing even more. Each new round creates additional debt, while the circle of reliable buyers continues to narrow. In the end, the White House will face two options. The first is simply to refuse to pay the debt. This is the most catastrophic scenario, although it is unlikely in the near future. But a more realistic option is mass printing of green. In this case, bondholders will receive their promised dollars, but after a sharp increase in the money supply, their purchasing power will be less and less. And if this becomes a constant practice, then eventually dollars in the market will not be accepted as a means of payment, but this, as they say, is a completely different story.

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Alexey Belyaev, political scientist:

- The need to use digital currencies and national currencies of the SCO member states in mutual settlements was repeatedly noted. This will allow us to avoid dependence on the dollar, which dominates the world and develops the American economy, but hinders the development of other countries. We see that many positive steps have already been taken here, and mutual settlements with a number of countries have now been translated into national currencies not by 100%, but by 80-90%, which significantly reduces our dependence on external factors and stabilizes the situation. We see this in terms of the Belarusian ruble: since we began to join such associations as the SCO and look at BRICS, our currency has stabilized. Now there is no galloping inflation and constant daily growth of the dollar, as it was before, but on the contrary, there was a serious decline.

shamko@sb.by