US Dollar Weaponization Accelerates De-Dollarization

The US government is intensifying its use of the dollar as a foreign policy tool, further accelerating de-dollarization. On September 23, US Treasury Secretary Scott Bessent announced plans to ground Iranian commercial airlines, warning that any company or country supporting them could face secondary sanctions and be 'knocked out' of the dollar system.

Bessent stated that if companies provide fuel, landing services, or sell tickets to these airlines, they will be barred from the dollar system. This move is part of broader measures to pressure Iran's regime and isolate it from the global financial system.

The US has threatened secondary sanctions on foreign companies across various sectors, including energy, shipping, precious metals, crypto, and manufacturing. As the dollar serves as the world reserve currency, the US can back up these threats by restricting access to the dollar system, freezing assets under US jurisdiction, and limiting dealings with US companies.

De-dollarization is a response to this aggressive use of the dollar. Many countries are taking steps to limit their exposure to the dollar and dollar assets, fearing that the US could sanction their dollar activities if they don't have any. Central bank gold buying has increased since Russia invaded Ukraine, with gold overtaking US Treasuries as the top global reserve asset.

Some argue that sanctions are a necessary foreign policy tool, but experts warn that de-dollarization creates economic problems for the US. The country relies on global demand to underpin its bloated government, and a drop in this demand could lead to an inflation tsunami as unwanted dollars make their way back to the US.