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- The US’ move to freeze Russia’s access to dollars is seen by some as a threat to the dominance of the greenback.
- Yet US Deputy Treasury Secretary Wally Adeyemo on Monday gave four reasons why he thinks the dollar isn’t going anywhere.
- He pointed out that Russia has been trying, and failing, to wean itself off of dollars since the invasion of Crimea in 2014.
After Russia invaded Ukraine in late February, the US and its allies slapped fierce sanctions on the country’s financial system and oligarchs.
President Joe Biden’s use of American economic power to punish Russia has raised questions about whether countries can continue to rely on the dollar as the world’s de facto currency.
Yet plenty of experts have pushed back against the view that the dollar’s position is under threat.
Deputy US Treasury Secretary Wally Adeyemo added his name to that list Monday, with a full-throated defense of the dollar in a question-and-answer session following a talk to the Peterson Institute of International Economics.
Here are the four key reasons why Adeyemo — and, by extension, the US Treasury — thinks the dollar will continue to hold its place as the world’s reserve currency.
1. The US remains the most important economy and financial hub
“I expect that the dollar will remain the most dominant currency in the world,” Adeyemo said. One of the key reasons he gave is that the US is the most important economic player, meaning its currency is naturally the most widely used.
“We have the deepest, most liquid capital markets in the world. We have the world’s most complex, significant economy,” he said.
2. Sanctions on Russia were not just put in place by the US
Addressing the current situation, Adeyemo said there is certainly a risk that tough sanctions on Russia make some countries look for alternative currencies.
Yet he said that this is why the US took action in coordination with its allies, notably the European Union and United Kingdom.
“Part of the reason the president was so focused on making sure that the actions we took with regard to Russia involved our closest allies and partners, was to ensure that this wasn’t just seen as an action that the United States was taking, or that we were taking based on the power of the dollar. But it was one that all the countries that control the world’s convertible currencies were also taking,” he said.
3. Russia has tried to cut its reliance on the dollar — but can’t
Adeyemo said the situation in fact demonstrates the strength of the dollar, rather than any weakness. President Vladimir Putin’s government has tried, and failed, to wean itself off the greenback ever since the US applied sanctions after Russia invaded Crimea, he said.
“Russia has taken every action since the invasion in 2014 to get away from the dollar,” he said. “Yet Russian financial institutions that were transacting around the world, trying to sell and buy goods and assisting their companies in doing that, 80% of their foreign exchange transactions still involve the US dollar.”
4. The US is trustworthy
The deputy Treasury Secretary briefly noted that holding US currency and assets is appealing because investors and global traders trust the US legal system. “We continue to have a stable set of laws in this country,” he said.
Although Adeyemo did not directly make the comparison, many analysts have said that the Chinese yuan still looks unattractive because the Chinese Communist Party fully controls the economy and legal system.
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