Why it may be impossible to replace US dollars in international trade – Treasury Secretary

The United States Secretary of Treasury, Janet Yellen, on Friday, shared reasons why the US dollar may remain the global trade currency.

“There is a very good reason why the dollar is used so widely in trade and that’s because we have deep liquid open capital markets; a rule of law and long and deep financial instruments that make it safe and convenient,” she said at the just concluded new financing pact summit in Paris, France.

Over time, there has been a clamour for global trade markets to allow other currencies aside from the US dollar to be used in international trade. This clamour got louder with the Russia-Ukraine war after economic sanctions were placed on Russia making it impossible for it to trade in dollars.

The President of Brazil, Luiz da Silva, during the closing ceremony in Paris, questioned why the world has to continuously depend on the dollar for international trade as against the use of any currency of choice.

He noted that this will be key on the agenda for the BRICS summit in September. This is however not the first time the Brazilian leader is making a public call for an alternative to the dollar.

Cyril Ramaphosa of South Africa backing his BRICS partner assured that the topic will make the agenda for the September summit.

“We have the BRICS meeting, the issue of currency is top on the agenda, so we are going to discuss it,” he said at the summit in Paris.

Acknowledging these concerns and in response to a question posed by a journalist, Ms Yellen said the clamours were for different reasons, but most importantly, the ability to depend on the dollar gives the United States the power to levy sanctions on countries that are guilty of enormous abuses including human rights abuses.

With the sanctions on Russia, its allies traded with it in other currencies including the Chinese Yuan; especially countries within the BRICS.

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According to Ms Yellen, US treasuries are the world’s safest asset, adding that it is not really easy for other countries to replicate that set of advantages.

Ms Yellen had said two months ago in an interview with CNN that the sanction on Russia may affect the hegemony of the dollar in the market.

“There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar,” she told CNN’s Fareed Zakaria.