CNBC: A 'Growing Club' of 'Very Powerful Countries' is Steering Away from Using the Dollar

November 26, 2019

Article by Eustance Huang in CNBC financial

The U.S. dollar has been the world’s major reserve currency for decades, but that status could come under threat as “very powerful countries” seek to undermine its importance, warned Anne Korin, from the Institute for the Analysis of Global Security.

“Major movers” such as China, Russia and the European Union have a strong “motivation to de-dollarize,” said Korin, co-director at the energy and security think tank, on Wednesday.

“We don’t know what’s going to come next, but what we do know is that the current situation is unsustainable,” Korin said. “You have a growing club of countries — very powerful countries.”

To be sure, the dollar is seen as one of the safest investments in the world, and it rises during times of economic or political tumult.

But one factor curbing countries’ enthusiasm for the greenback is the prospect of being subject to U.S. jurisdiction when they transact in dollars. When the U.S. dollar is used or transactions are cleared through an American bank, entities are subject to U.S. jurisdiction — even if they have “nothing to do with the U.S.,” Korin told CNBC’s “Squawk Box.”

“Europe wants to do business with Iran. It doesn’t want to be subject to U.S. law for doing business with Iran, right?” she said. “Nobody wants to be picked up at an airport for doing business with countries that the U.S. isn’t happy that they’re doing business with.”

As a result, countries have a “very, very strong motivation” to shift away from using the greenback, she said.

But if the dollar declines in influence, other currencies could fill the role traditionally played by the greenback — especially China’s yuan.

In recent years, China has tried to internationalize the use of its currency, the Chinese yuan.Such moves have included the introduction of yuan-denominated crude oil futures and reports that China is preparing to pay for imported crude in its own currency rather than the U.S. dollar.

To read this article in CNBC in its entirety, click here.

 

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