Treasury Secretary Janet Yellen says that it’s reasonable to expect other countries to gradually look for alternatives to the US dollar as the geopolitical world stage evolves.
Speaking during The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System meeting, Yellen says that US sanctions may push other countries to diversify from the dollar – though she says it won’t be easy for them.
Answering Texas Representative Vicente Gonzalez Jr. who said that US sanctions may be causing a “paranoia” in other countries, Yellen conceded it was true that the government’s foreign policy was forcing other nations to form contingency plans for doing business.
“It is true that when we impose sanctions, countries that are afraid that can be the subject of those sanctions, are motivated to look for other tools other than the dollar to engage in transactions. So that’s something we have to accept. It is much more difficult to find other tools to make payments in other currencies when we work jointly with partners…
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But I would say there is virtually no meaningful workaround for most countries for using the dollar as a reserve currency.”
Yellen notes that countries around the world have already started diversifying the currencies they hold beyond just the dollar, but she says it’s something to be expected in a “growing world.”
“There’s been some increase in holdings in other reserve assets, but that’s something to be expected in a growing world, an economy where countries desire to diversify… We should expect over time, a gradually increased share of other assets in reserve holdings of countries. It’s a natural desire to diversify, but the dollar is far and away the dominant reserve asset.”
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