The Almighty Dollar

Financial Justice Ideas and Issues International


            Marble Falls      With inflation at 8.5% over the last year, the high-water mark since 1981, many are thinking about what our dollars are worth and whether we can make groceries and rent soon.  It’s a funny thing though, in making a list of our entitlements as Americans, some might note the beauty of our landscape, others the resilience of our systems of laws, elections, and government, and maybe our living standards.  Few would probably put our dollar-based financial system in the top ten, but the more we read about the impacts of financial sanctions that we impose on countries around the world, especially Russia in retaliation for its horrific invasion of Ukraine, the more we might want to move it up a couple of notches.  It turns out that the dollar is worth more than simply what we can buy at the gas station.  It also can grind whole economies nearly to a halt.

When sanctions came back in the news, I wondered how much damage they might really impose on Russia.  Certainly, Cuba and Iran had endured for years under sanctions, damaged surely, but not totally crippled.  Reading a review of a new book about sanctions as an economic weapon in the London Review of Books, I started to get a much better look at how much hurt they could put on a country.  From the first paragraph you get the sense of the dollar’s potentially destructive power internationally.

…in the international financial system, a single state has overwhelming power. The vast majority of transnational payments are routed through US banks. US treasury bonds are the de facto reserve asset around the world. The Fed is the global supplier of liquidity in times of crisis. National economies respond on a hair trigger to US monetary policy. Giant American and European financial institutions, based for the most part in the US, control a large share of international corporate activity. New York is in effect the organisational headquarters of global capitalism…. Almost all transactions between nations are priced and settled in just a handful of currencies, of which the dollar makes up by far the biggest share.

When the USA bars Russian banks from trading and exchanging currency in dollars and effectively blocks them from the global financial market, it is virtually putting them out of business.  The same thing goes for any import-export business normally conducted in rubles that depend on being exchanged for dollars in order to complete the sale.  The door closes on their feet.

We know that some of the impact of sanctions take time on a country’s economic system, but the clock seems to run pretty fast.  Reportedly, Russia has already lost almost a third of GDP.  They are moving mountains to not default on debt.  Various oligarchs and others close to Putin have seen their assets frozen.

It only gets worse, especially for regular citizens.  Middle-class families that were on vacation in Turkey or elsewhere when the sanctions hit, are now stuck with their accounts frozen in those banks.  Regular families can’t access basic necessities now and the longer under sanction the more desperate the situation will be.  Some argue that the impact on a country’s population is so severe that sanctions are in effect a class war.

The theory seems to be that the more painful and comprehensive the sanctions, the more pressure they will be able to apply on a country’s financial and political elite.  I get the fact now that the almighty dollar can cripple a country’s economy.  Sanctions are truly a weapon of war.  I get the fact that sanctions may be necessary as a step short of actual boots-on-the-ground blood-and-guts war.  What leaves me unsure though is whether they really work in forcing governments to change, which has not been the case in Cuba, Iran, Venezuela, and so many other countries where we have swung our financial muscle around and are still stuck in the same rut, while whole populations have been imperiled and damaged.