US Sanctions on Russia May Sink the Dollar
by Ron Paul
The
US government's decision to apply more sanctions on Russia is a grave
mistake and will only escalate an already tense situation, ultimately
harming the US economy itself. While the effect of sanctions on the
dollar may not be appreciated in the short term, in the long run these
sanctions are just another step toward the dollar's eventual demise as
the world's reserve currency.
Not only is the US sanctioning
Russian banks and companies, but it also is trying to strong-arm
European banks into enacting harsh sanctions against Russia as well.
Given the amount of business that European banks do with Russia,
European sanctions could hurt Europe at least as much as Russia. At the
same time the US expects cooperation from European banks, it is also
prosecuting those same banks and fining them billions of dollars for
violating existing US sanctions. It is not difficult to imagine that
European banks will increasingly become fed up with having to act as the
US government's unpaid policemen, while having to pay billions of
dollars in fines every time they engage in business that Washington
doesn't like.
European banks are already cutting ties with
American citizens and businesses due to the stringent compliance
required by recently-passed laws such as FATCA (Foreign Account Tax
Compliance Act). In the IRS's quest to suck in as much tax dollars as
possible from around the world, the agency has made Americans into the
pariahs of the international financial system. As the burdens the US
government places on European banks grow heavier, it should be expected
that more and more European banks will reduce their exposure to the
United States and to the dollar, eventually leaving the US isolated.
Attempting to isolate Russia, the US actually isolates itself.
Another
effect of sanctions is that Russia will grow closer to its BRICS
(Brazil/Russia/India/China/South Africa) allies. These countries count
over 40 percent of the world's population, have a combined economic
output almost equal to the US and EU, and have significant natural
resources at their disposal. Russia is one of the world's largest oil
producers and supplies Europe with a large percent of its natural gas.
Brazil has the second-largest industrial sector in the Americas and is
the world's largest exporter of ethanol. China is rich in mineral
resources and is the world's largest food producer. Already Russia and
China are signing agreements to conduct their bilateral trade with their
own national currencies rather than with the dollar, a trend which, if
it spreads, will continue to erode the dollar's position in
international trade. Perhaps more importantly, China, Russia, and South
Africa together produce nearly 40 percent of the world's gold, which
could play a role if the BRICS countries decide to establish a
gold-backed currency to challenge the dollar.
US policymakers
fail to realize that the United States is not the global hegemon it was
after World War II. They fail to understand that their overbearing
actions toward other countries, even those considered friends, have
severely eroded any good will that might previously have existed. And
they fail to appreciate that more than 70 years of devaluing the dollar
has put the rest of the world on edge. There is a reason the euro was
created, a reason that China is moving to internationalize its currency,
and a reason that other countries around the world seek to negotiate
monetary and trade compacts. The rest of the world is tired of
subsidizing the United States government's enormous debts, and tired of
producing and exporting trillions of dollars of goods to the US, only to
receive increasingly worthless dollars in return.
The US
government has always relied on the cooperation of other countries to
maintain the dollar's preeminent position. But international patience is
wearing thin, especially as the carrot-and-stick approach of recent
decades has become all stick and no carrot. If President Obama and his
successors continue with their heavy-handed approach of levying
sanctions against every country that does something US policymakers
don’t like, it will only lead to more countries shunning the dollar and
accelerating the dollar's slide into irrelevance.
--
Please
note Dr. Paul made an error at the very end with the website address.
The site ronpaul.org is NOT an official Ron Paul site; rather, he meant
to say RonPaulInstitute.org
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