The power of the US dollar has been on full display as the core of the West’s response to Russia’s invasion of Ukraine. Will the “weaponisation” of the dollar, however, sow the seeds for its eventual demise?
The sanctions on Russia have provided a dramatic demonstration of dollar dominance within the global financial system via measures that not only shut off Russia’s access to the global financial system but froze more than half the war chest of foreign exchange reserves it had spent eight years accumulating to insure against exactly that event. It has plunged Russia’s economy and domestic financial system into immediate chaos.
That graphic display of how brutal the deployment of dollar dominance can be when fully exercised – the freezing of much of Russia’s $US640 billion ($878 billion) of foreign exchange reserves and the booting of Russian banks off the SWIFT financial messaging platform were unprecedented actions against a significant economy – could, however, force other countries to consider their own vulnerability and seek to immunise themselves against similar actions.
China’s fence-sitting in relation to the invasion rather than actively supporting its new “no limits” friendship with Russia owes much to its fear of triggering similar action by the US and its allies.
