India, which is not a strategic ally of China, and Malaysia announced a new mechanism for bilateral rupee trade in April. It is part of a broader effort by the Narendra Modi government, which has not joined the US-led campaign of sanctions against Russia, to avoid the dollar in at least some international transactions.
A month later, the Association of Southeast Asian Nations agreed to boost the use of its members’ currencies for regional trade and investment.
And South Korea and Indonesia signed an agreement a few weeks ago to promote the direct exchange of the won and the rupee.
Brazilian President Luiz Inácio Lula da Silva lashed out at the dominance of the dollar during a visit to Shanghai in April. Standing at a podium surrounded by the flags of Brazil, Russia, India, China and South Africa, the so-called BRICS nations, he called on the world’s largest developing economies to come up with an alternative to replace the greenback in foreign trade, asking “ Who decided that the dollar was the (commercial) currency after the end of the gold parity?
It dated back to the early 1970s, when the post-World War II agreement known as Bretton Woods, which had made the dollar the center of world finance, was unraveling. The collapse of the agreement did not affect the pre-eminent position of the dollar. To this day, it is the world’s dominant reserve currency, which has fueled demand for US bonds and allowed the country to run huge trade and budget deficits.
The centrality of currency in the global payment system also allows the US to exert unique influence over the economic fate of other nations.
According to the most recent data from the Bank for International Settlements, about 88% of all global currency transactions, even those that do not involve the US or US companies, are made in dollars. Because banks that handle cross-border dollar flows maintain accounts at the Federal Reserve, they are susceptible to US sanctions.
Although the campaign of financial punishments against Russia is the most recent and prominent example, both the Democratic and Republican administrations have resorted to sanctions against countries such as Libya, Syria, Iran and Venezuela in recent years.