Sanctions may risk hegemony of US dollar: Yellen

By Al Mayadeen English
Source: Agencies
16 Apr 23:43
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Treasury Secretary Janet Yellen says US sanctions create a desire on the part of China, Russia, and Iran to find an alternative.

Treasury Secretary Janet Yellen listens to a question during a news conference at the Treasury Department in Washington, Thursday, April 21, 2022. (AP)

The United States economic sanctions imposed on Russia and other nations have put the dollar's hegemony at risk as targeted countries seek out an alternative, Treasury Secretary Janet Yellen said Sunday.

"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," Yellen said on CNN.

Read: World biggest economies looking for USD alternatives

During an interview with CNN host Fareed Zakaria, she said that these sanctions definitely "create a desire on the part of China, of Russia, of Iran to find an alternative," adding, however, that "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 robust US capital markets and rule of law "are essential in a currency that is going to be used globally for transactions," she added. "And we haven't seen any other country that has the basic... institutional infrastructure that would enable its currency to serve the world like this."

Read: Lula calls on Global South to ditch USD, trade in own currencies

Sanctions are an "extremely important tool," Yellen noted, all the more so when used by the US and its allies as "a coalition of partners acting together to impose these sanctions."

Asked about whether frozen Russian assets can be used to reconstruct war-torn Ukraine, Yellen said that "Russia should pay for the damages that it's caused," but noted that there are "legal constraints on what we can do with frozen Russian assets, and we're discussing with our partners what might lie in the future."

Read: US dollar no longer required in international trade with India

European Commission (EC) lawyers concluded on Thursday that the assets of the Bank of Russia, which had been frozen by the EU, will be returned to Moscow once the war in Ukraine ends, according to the German newspaper Die Welt newspaper.

The newspaper cited an unpublished EC document, which stated that the assets of the Bank of Russia "cannot be touched since once upon a time when the war ends, they will have to be returned to Russia." EC experts have reached that "sobering conclusion" despite having claimed that "there is a political will but legal barriers are high."

Alternatively, the EC has mulled over the idea of investing the currently frozen assets of the Bank of Russia in such a way as to use the interest gained as support for Kiev.

However, it remained that the EC's legal service has yet to find a solution to what would happen in the event that the EU loses the invested funds under any circumstances.

It was reported back in February that London was planning to seize frozen Russian assets and was drafting legislation to do so.

Between February and October 2022, the United Kingdom froze 18.39 billion pounds ($21 billion) in Russian assets in response to the war in Ukraine, the Treasury’s Office of Financial Sanctions Implementation (OFSI) wrote in its 2022 annual review.