At the onset of the war, the Fed, under direction of the Biden Administration, illegally seized Russia’s foreign reserves. Illegal is the correct word.
Nowhere does the act give the Fed the right or power to confiscate the reserves of sovereign nations. But that is exactly what the Fed did when it seized Russia’s US dollar reserves.
If the Fed can confiscate Russia’s reserves, who’s next?
The recent removal of Russian banks from the SWIFT messaging system has highlighted the importance of payments in supporting economies. But the weaponization of SWIFT has also left some commentators worrying about the loss of the U.S. dollar’s dominance, as it might drive banks and firms to other substitutes. This Economic Brief discusses the economics of SWIFT and explains why emigrating from the U.S. dollar may be more difficult than we thought.
It appears to me Russia and Iran just succeeded.
US policy is to blame.
However, it’s easier for Russia than it will be for China because China is too dependent on exports to the US and EU. Regardless, more dollar and SWIFT avoidance is in the pipeline.
The BRICS are working on a similar idea. They will fail to achieve much traction except in one area, sanction avoidance.
For discussion and reasons why, please see What Would it Take for a BRIC-Based Currency to Succeed?
Coupled with central bank digital currencies, countries and individuals will have a clear means of sanction avoidance. US sanctions on Iran, Venezuela, and other nations and individuals are a tiny percent of global trade, but those sanctions are not trivial to the individuals and countries sanctions.
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