by CONN HALLINAN
While U.S. sanctions against Russia’s will inflict economic pain on Moscow, in the long run the U.S. government may lose some of its control over international finance. PHOTO/Wikimedia Commons
The recent round of sanctions aimed at Moscow could backfire on Washington by accelerating a move away from the dollar as the world’s reserve currency.
The use of sanctions as an international cudgel has long been complicated by some nasty unintended consequences.
For the United States and the world economy, one consequence could be particularly significant: The recent round of sanctions aimed at Moscow over the crisis in Ukraine could backfire on Washington by accelerating a move away from the dollar as the world’s reserve currency.
While in the short run American actions against Russia’s oil and gas industry will inflict economic pain on Moscow, in the long run the U.S. government may lose some of its control over international finance.
A World Beyond the IMF
Proposals to move away from using the dollar as the international currency reserve are by no means new. Back in 2009, the Shanghai Cooperation Organization (SCO) proposed doing exactly that. SCO members include Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Afghanistan, Iran, India, Pakistan, and Mongolia have SCO observer status, and the organization has close ties with Turkey and the Association of Southeast Asian Nations.
Ever since the 1944 Bretton Woods Conference, the world’s finances have been dominated by the U.S. dollar, the International Monetary Fund (IMF), and the World Bank. But according to economist Jeffrey Sachs, that world is vanishing. The dollar cannot continue to hold the high ground, Sachs says, because “the role of the United States in the global economy is diminishing.”
While it may be diminishing, the United States and its European allies still control the levers of international finance. For example, the U.S. slice of the global GDP is 19.2 percent, and its share of IMF voting rights is 16.8 percent. In contrast, China, with 16.1 percent of the global GDP, has only 3.8 percent voting rights in the IMF. The presidency of the organization is reserved for a European.
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