As Venezuela’s economy crumpled heading into 2017, the US thought President Nicolás Maduro was vulnerable in elections for governorships that year and for the presidency in 2018. To pressure Maduro to conduct fair polls, Washington turned to economic sanctions.

Wham! In February 2017, Maduro’s vice president had his US assets iced. In May, the eight Supreme Court justices were whacked. In July, the head of the National Economic Council and eight prominent ‘Chavistas’ were hit. In August, Maduro was bammed.

By 2019, the sanctions against Venezuela had broadened beyond individuals. But they look timid compared with the punishments inflicted on Russia after it invaded Ukraine in 2022. A Washington-led posse froze half of Russia’s foreign-exchange reserves, to smash the trust around the neutrality of such hordes. Russian banks were cut from the US payments system. Moscow powerbrokers had assets confiscated.

Washington can impose sanctions on enemies that extend to Afghanistan, Cuba, North Korea, Syria and Yemen and neutrals such as Switzerland (which was forced to end banking secrecy) because the world transacts in US dollars and such transactions handled by banks fall under US jurisdiction. Galling too are ‘secondary sanctions’, where Washington forces third countries to comply with policies against its enemies by threatening to block access to the US financial system.

No surprise, US foes are seeking to sidestep the weaponisation of the US dollar’s unique reserve status. So too are US allies and neutrals. Countries including India are trading with Russia in non-US currencies. China and Saudi Arabia have signed a currency swap worth US$7 billion, as countries in the Middle East look to shift non-oil trade away from the US dollar. Argentina settled a US$2.7 debt with China in yuan and, via a currency-swap, will use yuan to invest in public projects. Brazil and China are settling trade in their currencies (rather than US dollars), while India and Malaysia are trading in rupees. France is transacting in yuan. Pakistan has bought oil with yuan. South Korea and Indonesia are exchanging the won and rupiah. United Arab Emirates accepts payment in yuan. Leaders of Brazil, Russia, India, China and South Africa intend to trade in each other’s currencies and want to extend this quest to the ‘Global South’. The Association of Southeast Asian Nations is pondering the same.

China and Russia are leading the drive to puncture the US dollar. They are creating the clearing-house and financial-messaging infrastructure for trading and investing in their currencies. China is pushing to internationalise the yuan (when it’s used by third parties), promotes an e-yuan for the same purpose and has ensured the yuan is one of five currencies that form the IMF’s emergency ‘special drawing rights’.

Such are fledging attempts to bypass the US financial system. But it will take a bigger effort. The unprecedented role the US economy plays in capital flows and global trade has given the greenback a status no primary reserve currency has held. The US dollar has attained this linchpin hold because Washington lets foreigners own unlimited amounts of US assets. The capital heading to the US allows other countries to run current-account surpluses, even conduct mercantilist practices that hurt US exporters.

At risk for the US are the privileges that come with issuing the hegemon currency in the fiat era that began in 1971. Washington can create unlimited amounts of US-dollar-denominated securities, run budget deficits, doesn’t need to hold forex reserves, nor fret about the state of the US’s balance of payments.

The world, even though it needs reserve currencies, stands to gain from minimising the risks it faces from the US dollar’s matchless status and free-floating nature. A soaring US dollar boosts the cost of commodities priced in US dollars and increases repayments in local currencies of US-dollar-denominated debts.

Countries that peg currencies to the greenback must mimic the Federal Reserve’s monetary policy even if that’s inappropriate. All are hostage to the world’s biggest ‘carry trade’. This term describes when US interest rates are below foreign equivalents they encourage investors to borrow in US dollars and invest in higher-yielding US and non-US securities. Thus, cheap US money fuels global asset bubbles, and vice versa.

But for all the US dollar’s drawbacks as the hegemon currency, there are no alternatives. The euro is the closest rival. But the eurozone monetary union lacks the banking, fiscal and political unions a currency union needs to endure. The absence of a eurozone government limits the sale of the needed securities. Other Western currencies lack the security issuance to substitute for the US dollar.

The yuan is no usurper because China’s currency lacks the backing of a trusted democratic government and rule of law. Beijing restricts China’s capital account, the country’s financial markets are underdeveloped and Beijing does not want to forgo the control it would lose if the yuan were market set.

Away from currencies, options for diversifying away from the US dollar include crypto currencies, commodities, namely gold, and a global fiat money such as the IMF’s special drawing rights. But crypto currencies including ‘stable coins’ are unstable. They have no intrinsic value, are complex to trade and the amount on issue is small. Gold is awkward to trade physically, needs to be stored, pays no interest and its price gyrates. The IMF’s special drawing rights would be stillborn as a reserve option.

But Washington is overusing financial sanctions to a point where rivals need to neuter the US dollar as a weapon. Any transferring of impounded Russian assets to Ukraine would only spur US rivals to create an alternate reserve currency, one that could be gold-backed to boost acceptance. One immediate risk as US foes seek to build trust in another currency is less demand for US Treasuries, which boosts US, and thus global, interest rates.

The longer jeopardy is a collapse in the greenback that sparks hyperinflation, unsettles the global financial system and overturns the global trading order. King dollar won’t quietly be dethroned. Surely US rivals know that?

To be clear, an alternative to the US dollar is years away and comes with so many hurdles it might not happen.

But Washington’s financial coercion forces rivals to try. Such is the inevitable consequence of belting Maduro and so many others.