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U.S. Should Heed Lessons From the Sterling Area's Decline

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EDITOR NOTE: Almost a century ago another superpower tried to wield its economic dominance by weaponizing its currency. That was the British Empire. And it found its end, after a devastating world war, once nations chose another dominant alternative--the US dollar. Weaponizing the dollar to beat other countries into submission by way of sanctions and exclusion is something that reached a high point during the tenure of both Presidents Obama and Trump. So, it’s no surprise that countries are looking to the euro, or perhaps soon, the digital yuan, to find its way out from under the dollar’ constrictive yoke. Might this spell the end to America’s global economic dominance, similar to the Sterling Area's decline? According to the paper reported in the Bloomberg article below, it’s quite possible. Think of it: what might happen to the dollars you hold in your bank account once it loses its hegemony over all nations across the globe? Now’s the time to hold a much safer alternative in non-CUSIP gold coins or bars. We’re at least certain that central banks hold gold reserves as a globally recognized form of money, as it has been for 5,000 years.

U.S. officials leveraging the dollar’s dominance as a reserve currency to wield influence should heed the lessons of the Sterling Area’s decline, according to a newly published study.

The paper, released this month by the Centre for Economic History at Queen’s University Belfast, looks at how international monetary leadership can end by chronicling the disintegration of the pound’s hold on the global economy in the decades after World War II.

“In findings that should worry U.S. leaders tempted to weaponize the dollar for geostrategic gains, we find that constraints imposed on Sterling Area members accelerated exits,” the authors wrote. “Just as recent U.S. efforts to sanction and exclude countries from the dollar order have accelerated efforts to find alternatives, so too did Britain’s imposition of direct controls and constraints.”

Under President Barack Obama’s administration, U.S. officials used the dollar’s status to deliver more muscular enforcement of sanctions, most notably by fining BNP Paribas SA almost $9 billion and suspending it from certain dollar transactions for flouting its regime.

Frustration at such policies under Donald Trump’s presidency led the European Union to a concoct a strategy in January on how to boost the role of the euro and better insulate the bloc.

“Only limited faith can be placed in the idea that dollar holders are ‘trapped’ by risks of economic loss,” the authors wrote. “The adverse downstream consequences of monetary coercion for the long-term viability of monetary power are material.”

The paper was written by Alan de Bromhead, David Jordan, and Francis Kennedy of Queen’s University and Jack Seddon of Wasada University in Tokyo

Original post from Bloomberg

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