Russian President Vladimir Putin has criticized the United States' use of the dollar as a foreign policy tool, accusing President Joe Biden's administration of undermining the currency's global influence.
“To use the dollar as a tool of foreign policy struggle is one of the biggest strategic mistakes made by the U.S. political leadership,” Putin said in an interview with Tucker Carlson.
“It is the main weapon used by the United States to preserve its power across the world. As soon as the political leadership decided to use the US dollar as a tool of political struggle, a blow was dealt to this American power.”
This criticism comes amid heightened tensions between Russia and the West. Economic sanctions have been imposed on Russia since its attempted invasion of Ukraine in 2022, specifically targeting Russian banks' transactions in major currencies such as the dollar, pound and euro.
In addition, Russia was also expelled from Swift, the principal international payments network. The aim is to restrict the country's resources for the war effort and contract its economy.
However, Putin's criticism of sanctions in the interview underscores a broader shift away from the dollar, a move known as de-dollarization. As a founding member of BRICS, a coalition of emerging economies including China, India, Brazil, South Africa and more, Russia has been at the forefront of efforts to settle major trades in local currencies rather than the dollar. This initiative is gaining traction as countries seek to lower transaction costs, mitigate exposure to global volatility and geopolitical risks and support their own economies.
During the live-translated interview, Putin pointed out that even U.S. allies were reducing their reliance on the dollar in their reserves.
“Until 2022, nearly 80 percent of foreign transactions in Russia were settled in U.S. dollars or euros. Currently, it is now down to 13 percent,” said Putin.
“By the way, our transactions in yuan accounted for about 3 percent. Today, 34 percent of our transactions are made in rubles, and about as much, a little over 34 percent, in yuan.”
Global de-dollarization trends
De-dollarization, the ongoing trend of countries moving away from the U.S. dollar for reserves, transactions and valuation, has garnered attention in recent years.
Examining data on de-dollarization, Putin's concerns about the dollar's status appear timely. Speculation surrounding the dollar's role as the world's reserve currency has intensified, particularly in light of the U.S.'s substantial $34 trillion debt burden.
Statistics from the International Monetary Fund (IMF) reveal a gradual decline in the dollar's share of allocated foreign exchange reserves, dropping by approximately six percent since early 2016.
However, as of the third quarter of 2023, the U.S. dollar still comprised 59.17 percent of global allocated foreign exchange reserves, a significant proportion compared to the Chinese yuan's 2.37 percent share during the same period.
Analysts at FXC Intelligence, who recently published a report on de-dollarization, caution against viewing this trend as swift or immediate.
“It is instead currently on course to be a slow process over the next couple of decades as countries shift to a broader range of currencies, likely to provide greater hedging from future possible geopolitical shocks,” said Lucy Ingham, editor-in-chief and head of content at FXC Intelligence, as quoted by Moneywise.
Despite these developments, the U.S. remains steadfast in its dismissal of concerns over de-dollarization, framing it as a "natural desire" for countries to diversify their economies. Leading economists have echoed this sentiment, labeling the notion of any currency replacing the U.S. dollar as "ridiculous."