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"The dollar is the most import thing that gives theU.S. power,"Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security, told an audience atRenmin University of China on Monday.
Yet the county's out-of-control deficits along with global scrutiny of its overuse of sanctionshaveprompted a revolt against the currency, he continued, at an event marking the launch of a new book co-authored by Luft on de-dollarization.
The U.S. has usedsanctions and other economic weapons to forceother countries to adhere toits foreign-policy goals. One primeexample is when the U.S. unilaterally pulledout of the 2015 Iran nuclear deal, while re-imposing crippling sanctions on Tehran, putting European firms at risk of potential U.S. punishment.
The effects of the U.S. pullout from the Iran deal continue to reverberate, with the U.S. blamingIran for Saturday'sattack on Saudi oil facilities, which was strongly denied by Tehran.
Luft attributed the extraterritorial legal outreach of Washington to the reserve currency status of the U.S. dollar, with the greenback used in 80 percent of the cross-border transactionsworldwide.
Commodities for decades have beenmostly traded in the U.S. dollar, withoilalmost exclusively bought and sold in the U.S. currency.
If crude oil trading began to switch to other currencies, petrodollar demand would be undercut and American influence over global finance would diminish.
Saudi dilemma
NOPEC, or the No Oil Producing and Exporting Cartels Act,has not yet been made into law aspast U.S. presidents feared it would damage the U.S.-Saudi relationship.
However, U.S. President Donald Trump has repeatedly called on OPEC to raiseoil production in order to lower global oil prices, while showing political support forSaudiArabia – a key purchaser of U.S. weapons and military equipment.
Luft said Abu Dhabineeds to play a delicate gamesince the kingdomdependson the U.S. military alliance. He predicts Saudi Arabia will de-dollarize only to the extent that it could use the yuan when conducting trades with China, while keeping the overall "petrodollar"system intact.
Chineseimports of Saudi oilroseto 37.8 million metric tons in the first half of 2019, making the kingdom the largest source of China's crude imports.
"If they drop the dollar, that's a declarationof war against the United States. Because if the Saudis go, all of OPEC would go," Luft cautioned.
Europe launches INSTEX to facilitate trade with Iran
Renewed sanctionson Iranhaveintensified Europe's efforts tofind alternativesto the dollar dominance. Aspecial purpose vehicle – INSTEX, short for Instrument in Support of Trade Exchanges, was launched in June, allowing at least some business to continuewith Iran. The non-dollar payment system enables money to bepaid into the home country's account, which doesn't cross the border intoor out of Iran.
The move showed Europe's commitment to sticking withthe Iran nucleardeal, which was only achieved after strenuous, lengthy negotiations. The mechanism will initially focus on pharmaceutical products, medical devices, and food. But the fact that the three biggest economies in Europe– Germany, Franceand Britain–are involved in the scheme, and it being made operational and available to all EU members, should alert the U.S. to the fact that there is a growing, quiet movement building against the dominance of the dollar.
China, the world's largest importer of crude oil,set up a yuan-denominated oil contract in Shanghaiin March 2018.Ayear since the Shanghai International Energy Exchange(INE)opened for trading, the combined turnover of the INE crude oil futures stood at nearly 36.7 million lots, with a total value of 17.1 trillion yuan.
Russia last year increased efforts to sell oil in euros, while Reuters reported in August that Russia's Rosneft, one of the world's top oil producers, has contacted buyers about switching from dollars to euros on future tender contracts for oil productsin an attempt to bypass U.S. sanctions.
(CGTN)
