The US uses two weapons quite effectively to coerce others to comply with its demands: the threat of military force and sanctions. Despite its military might, the US has seldom won a war. Its dollar hegemony, however, is more difficult to overcome.
The reason is that the dollar remains the world’s reserve currency (60%) and oil is traded in it. Washington imposes sanctions on targeted countries and blackmails others to not trade with them. Iran, Russia, Venezuela, and Cuba all face US sanctions. Even Turkey, a NATO ally, is facing difficulties.
At least some countries are taking corrective measures to bypass the US dollar and the euro. Turkey and Iran opened lines of credit for business transactions last month in their respective currencies. This is a positive step and has enormous implications for the future.
Russia’s Energy Minister Alexander Novak also said last month that Moscow was considering payments in national currencies in trade with Iran and Turkey. It has already established such arrangements with China.
With the world’s second largest economy and soon to surpass the US, China is well positioned to mount an effective challenge to the dollar. It has also announced plans to establish the petro-yuan, replacing the petrodollar.
The Central Bank of Iran said its agenda was to seal deals for forex swap in local currencies with countries that are Iran’s major trading partners. These are exciting times and will usher in major changes in the near future.