Yellen Warns of Collusion Between Some Countries to Undermine US Dollar Supremacy

US Treasury Secretary Janet Yellen has warned that China, Russia, and Iran are collaborating to undermine the supremacy of the US dollar, the world's reserve currency. In an interview with CCN, Yellen said that the three countries are seeking to move away from the dollar after the United States used the currency to impose financial sanctions.

While acknowledging that the weaponization of the US dollar is an effective tool in deterring bad behavior on the global stage, Yellen warned that it could have the unintended consequence of countries coming together to circumvent the sanctions. She added that financial sanctions linked to the role of the dollar could over time undermine the hegemony of the currency.

Yellen stated, "So 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… But this is an extremely important tool we try to use judiciously and in circumstances, especially when we have the support of our allies. It's not just the United States. It's a coalition of partners acting together to impose these sanctions. So it is a very effective tool. Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative."

In recent years, China, Russia, and Iran have been making moves to lessen their reliance on the US dollar. Russia agreed to sell oil to China in exchange for yuan last year, while China brokered a deal that restored diplomatic ties between Iran and Saudi Arabia, two of the world's largest oil producers.

However, Yellen pointed out that despite efforts by some nations to find an alternative to the dollar, they would struggle to find a currency with the same fundamental properties. She said, "The dollar is used as a global currency for reasons that are not easy for other countries to find an alternative with the same properties. The US Treasury market is the deepest, most liquid, and safest asset. Dollars are widely used. We have very deep capital markets and rule of law that are essential in a currency that is going to be used globally for transactions, and we haven't seen any other country that has these basic infrastructure and institutional infrastructures that would enable its currency to serve a world like this."

The status of the US dollar as the world's reserve currency has been a topic of debate for many years, with some analysts predicting that its dominance could be challenged in the future. However, Yellen's comments suggest that the US government is aware of the potential risks and is taking steps to maintain the dollar's position.

It remains to be seen whether China, Russia, and Iran will be successful in their efforts to move away from the dollar and establish an alternative global currency. However, Yellen's warning serves as a reminder that the use of financial sanctions can have unintended consequences and may lead to unintended outcomes in the global economic system.