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The US must tread lightly on using dollar's control of the global monetary system. Image Credit: Reuters

The root causes for the Russia-Ukraine crisis are well-known, and yet there are unforeseen issues that are no less important. Or perhaps, even more important in the post-war world. As the tides sweep away detritus, the Ukrainian conflict has exposed economic and financial contradictions along with the embers, including that related to dollar’s dominance.

The US currency dominated global monetary transactions for seven decades, and provided that country with enormous financial capabilities and advantages that no one else had. The greenback allowed the US to pay for imports of all kinds of goods, and the printing of the currency accelerated in the past two years within the parameters of the so-called ‘quantitative easing’. In addition, the dollar granted Washington comprehensive control over all financial transactions between other countries, as such exchanges had to be routed through New York.

This situation is primarily attributed to the economic power of the US. Yet, it has been experiencing challenges after the emergence of countries with growing economic clout such as China, India, Russia, Brazil and Indonesia. Those countries believe it is time to end the dollar’s hegemony, something which will cause Washington, if this actually happened, to lose its throne in setting financial and monetary relations the world over. This transformation was taking place gradually even before the Russian attack on Ukraine.

A basket of currencies

But the conflict was like a strong wind that pushed ships to their final destination at great speed and encouraged more ‘captains’ to start sailing to take advantage of these conditions. Alternatives are available in the euro and the Chinese yuan. Many countries have listed the yuan within their monetary reserves along with the dollar and the euro, including those allied with Washington, such as Israel. The Central Bank of Israel recently decided to make the biggest change to its monetary reserve, adding the yuan to its reserves, which has exceeded $200 billion, along with three other currencies.

Moreover, economically influential China, Russia and India are using their national currencies in trade exchange operations away from the dollar. The Egyptian government has decided to authorize shipping agencies to accept the Egyptian pound instead of the dollar, according to Bloomberg. Thanks to the existence of Suez Canal, shipping operations have a special importance in Egypt.

Gas disconnect

Above all, the boldest measure was taken by Russia, where it decided to sell its oil and gas exports in rubles. Nine European buyers have so far paid their purchases of Russian gas in rubles, while gas has been cut off from Poland and Bulgaria after they refused to do so. The rest of Europe have to determine their position to avoid the cutting of gas supplies, which would constitute an economic disaster if it happened.

This does not mean an end to the ‘Age of the Dollar’, or that a transformation will take place tomorrow. The process will happen over a period and will end with the dollar losing its hegemony and turn into a normal currency for financial and commercial exchanges. It will be given some extra advantages due to the continued linkage of oil sales to the dollar; but if this link breaks, the dollar’s worth will erode further.

This dangerous transformation is being controlled by a country that continues to deal flexibly despite the unjustified US provocations against it. So far, it has been satisfied with launching warning balloons so as not to break the link between oil and the dollar, which if it happens will accelerate the establishment of a multipolar monetary world.