I don’t want to spend a lot of time on this, but the fundamentals are worth a quick review.
Russia had hundreds of billions of dollars on reserve at central banks. We have frozen them so they can’t spend them, and we’ve also forbidden banks, in general, to do almost any business with them in dollars.
So they have the money to avoid default, but are not allowed to use it to pay their debts.
This is like if you personally had an account at the bank for $10 million and they said, “We’ve frozen it so you can’t spend it, and we won’t accept money from anywhere else, but we still expect you to pay your mortgage.”
It’s obviously unfair, and everyone outside of the West knows it, as many countries have invaded other countries and none of them were hit this way. This punishment is so harsh because Russia is outside the club and didn’t have the nod or a similar punishment would have been doled out over Iraq, Libya, and Yemen, among many others.
It has made other countries scared for their money. Even countries that have license, like Saudi Arabia — who is currently bombing the hell out of Yemen with a sanction in sight.
Saudi Arabia is considering accepting the Yuan for oil payments.
Of course, the US is pushing back hard — that oil is priced in dollars, and it’s one of the main reasons the dollar is the global reserve currency.
But while the Sauds are in good for now, who is to say they always will be? What if one day the US decides to sanction them? Perhaps they see it as in their interest to diversify their reserves. Perhaps they also see Beijing as FAR less likely to sanction them? If they do, I agree. Just don’t piss China off about Taiwan, and the odds of China ever freezing your Yuan reserves or sanctioning you is essentially zero, not least because in order to grab reserve status from the US, they need to be more trustworthy.
I don’t know if the Sauds will do this yet; the pressure the US must be bringing is immense. But I do believe that when we look back on these massive sanctions, we will see that forcing Russia into default was the end of the dollar’s hegemony. This weapon has been used before, but only on marginal states. To do it to a Great Power is quite different.
The US can’t be trusted with your money. Before, people was perceived the US was the safest place.
For most countries, the dollar hegemony has been terrible; they sold American stuff and got numbers on a computer in return. (China on the other hand, played the game smart. They got the US industrial base in return and, even if the US freezes every dollar they have, they’ll still be ahead.)
Most countries will be better off in a de-dollarized world. But the US won’t, and if Europe stays a US satrapy (which most indications suggest it will) then it will be bad for them. Ironically, back in the early- to mid-2000s, the Europeans had the opportunity to make the Euro an independent reserve currency, but, as usual for Europe in the age of American dominance, they lacked the guts.
None of this will happen immediately. But I believe we’re either at, or within, a year of when we will be able to look back and see this as the tipping point.