Hyderabad: The United States of America is the most capitalistic nation on earth. It is built on the fundamental belief that markets are free. Of course, there are government rules, but the vast majority of the economy runs not because of them but despite them.
Unlike in India, there are no public-sector enterprises in America other than the post office. All companies are privately owned and operated, with zero government investment in every sector, including technology, healthcare, agriculture, mining, exploration, manufacturing, processing, electricity generation, or services. America is closest to a game of cricket, where there are rules and umpires, but a sense of intense competition results in the best team winning.
America’s belief in capitalism has made it the world’s wealthiest economy, so rich that if one discounts the next big economy—China—America’s GDP is larger than the combinedGDPs of the next eight countries: Japan, Germany, India, the United Kingdom, France, Russia, Canada, and Italy.
International Trade
It is little wonder that the U.S. dollar has been the world’s currency of choice for international trade since the end of World War II. Many of the world’s most essential commodities, including gold, silver, and crude oil, are priced in dollars. About half of the international trade is invoiced in dollars, and about half of all international loans – even when an American entity is not a party to the transaction.
The dollar’s dominance has made it the official currency of 11 countries and is the central peg for 65 currencies. The dollar makes up approximately 58% of all global reserves. This means that central banks, such as the Reserve Bank of India, hold most of their foreign reserves in dollars.
‘The Global Monopoly’
The dollar is practically a global monopoly. Sure, there’s the euro and the yen and the yuan and the pound, but for all intents and purposes, the dollar is king. For the world, this truth is not healthy.
No one likes monopolies. Consider the Indian Railways. If one is not happy with experiences during a train journey, there’s no one to complain to because the railways are an absolute monopoly. The same is not true if one is traveling by air or private bus. If the service is poor and your complaints are not adequately addressed, you can switch to a different provider the next time.
In the last twenty years or so, the dollar’s dominance has caused significant pain to many countries, including India. The American government uses its power over the dollar to control the behaviour of other countries to America’s liking. America is like the world’s police, forever watching for “unacceptable conduct” through a sizable front-office staff. If other countries do not comply with America’s stated rules, America has resorted to imposing financial sanctions of various degrees. This “weaponization” of the dollar is deeply troubling.
Many countries feel that a single country should not have the power to sanction other nations when the U.N. Charter explicitly states that all nations are equal. Yet, America, as the world’s Superpower, continues to unleash its economic weapons to serve its foreign policy interests.
‘Weaponising USD’
America can weaponize the dollar even for private transactions between companies because that is how the world’s plumbing has been built. All of the world’s commerce flows through the United States. The world’s largest banks—such as Citibank, Deutsche Bank, and HSBC—act as third-party financial institutions and have accounts with America’s Federal Reserve Bank. They act as a “correspondent bank,” an intermediary in the web of international commerce.
Suppose a Russian company wants to buy carpets from a Turkish company. The Russian company instructs its local bank to search the SWIFT messaging system to find a correspondent bank – say Citibank – that works with the Turkish seller’s bank. The Russian company’s rubles are converted to Turkish Lira at the correspondent bank and sent to the Turkish company’s local bank in Lira. The Federal Reserve Bank of New York quietly records the transaction because Citibank has an account with the Federal Reserve where the currency translation from Ruble to dollar to Lira takes place.
‘The Control’
This fact gives the Treasury Department’s Office of Foreign Assets Controls (OFAC) enormous power. If Russia or Turkey are under U.S. government sanctions, OFAC can block the transaction altogether.
Each country that America considers unworthy of membership in the global family of nations until they change their behaviour – Venezuela, Iran, Russia, North Korea, Iraq, Syria – is a target of American sanctions. Even countries crucial to American long-term geopolitical interests – India, Brazil, South Africa, and China – invite America’s ire if these nations deal with sanctioned countries. Recently, America announced that it would simply seize the annual interest from Russian fixed deposits in Europe, amortise it into a loan, and give it away to Ukraine.
In a 2021 paper, the United States Treasury reported that 9,421 sanctions designations were active, a 933% increase since 9/11, as American administrations, both Republican and Democratic, have used dollarization as a primary diplomatic weapon.
For nearly 20 years, countries have been fighting back by bypassing the dollar for international trade whenever possible. Indeed, the dollar, as a share of central banks’ foreign exchange reserves, is falling steadily, from about 72% in 2020 to about 58% in 2024.
‘INR’s Global Footprint’
Already, the Indian rupee is accepted in Thailand, so Indian visitors do not have to convert their rupees to dollars and then convert them back to Baht when spending in Thailand. The Indian rupee is accepted for small value transactions in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka, the United Arab Emirates (UAE), Kuwait, Oman, Qatar and the United Kingdom. Last year, Russia and Iran announced a deal where the two countries would trade with each other in Rubles and Rial. In June, Saudi Arabia refused to extend its “petrodollar” agreement, which, for 50 years, has mandated Saudi Arabia to use U.S. dollars when selling its crude oil exclusively. Saudi Arabia will now sell oil directly to China, Japan, and India in each of those countries’ local currencies, bypassing the SWIFT messaging system.
‘The Alternates’
There is also talk about a “BRICS” currency, in which Brazil, Russia, India, China, and South Africa will pool their resources to launch a currency to compete against the dollar. Such a launch couldn’t come sooner for the benefit of global commerce and the delinking of the world’s reserve currency from American political considerations.
A BRICS currency would also fit the mould of the American free-market model, which prizes competition above all else. Of course, the U.S. government would hate it because BRICS would further weaken Washington’s ability to use the dollar as a weapon.
(Rajkamal Rao, is an American entrepreneur, columnist, and Indian media commentator who writes on the economy, politics, immigration, foreign affairs, India-US bilateral relations, and sports. He has authored four books including a guide to study in elite institutions in the U.S. The opinions expressed in this article are that of the writer. The facts and opinions expressed here do not reflect the views of ETV Bharat.)
