US Senator Rand Paul has stated that the government’s foreign and fiscal policies are forcing members of BRICS – Brazil, Russia, India, China and South Africa – and other nations to “gang up” against the US dollar. In a recent Fox Business interview, Paul warned that the US is becoming increasingly isolated as outside powers collaborate to settle trades without using the US dollar. Furthermore, he argued that a push by the global community to move away from the dollar as the global reserve currency will force the US to lower its sovereign debt.
With a push for increasing sanctions globally, countries such as Iran, North Korea, Russia and China are also looking to shift away from the US dollar influence. Donald Trump recently expanded sanctions against individuals and companies in Russia and Belarus, and countries such as Iran are refusing to sell their crude oil in US dollars.
De-dollarization is attractive for many countries as reducing the use of the dollar enables other parties to cut the effect of US imposed economic restrictions on economies. A good example of this is Rosneft, Russia’s biggest oil firm, which conducted the first ever swap deal in euros last year to bypass US sanctions. Iran was one of the first countries to adopt this practice successfully; no longer selling its crude in dollars in 2016, it has actually boosted its crude exports to 2.1m b/d figure in September 2017 after purchasing 10 new tankers, as it is no longer under sanction. Trading less in the US dollar will be increasingly important for countries such as Russia, Iran and North Korea; all of which are likely to face increased or additional sanctions in the near term.
Paul believes that while the dollar is clinging to its position as reserve currency because of the government’s loose monetary policies, other nations are observing the devaluation of their dollar reserves as the US government continues to debase the dollar.
“When you look at the determination of the world’s trade, quite a bit of it, more than we’ve had for quite sometime, is denominated in things other than the US dollar. I think our foreign policy has something to do with that, too. We pushed all of our adversaries farther and farther away from us and closer and closer together. It’s not just China and Russia being pushed together by foreign policy. Obviously, some of it is their own doing, and it’s a response to things they’ve done that we don’t like,” Paul said.
Regardless, Paul feels that the dollar is in a precarious position and warns that it is not an unreasonable prediction to say that the US could lose its status as a reserve currency, for a variety of reasons, including foreign policy, fiscal irresponsibility and other emergent markets; all of which are forcing the rest of the world to trade in other currencies.
If the US loses its status as the world’s reserve currency, the US federal government will no longer be able to print unlimited amounts of money with impunity, and the United States will lose the ability to run massive deficits in perpetuity.
