This analysis first appeared in El Espectador
It's not going to happen tomorrow, in a year or even five years. But it's conceivable, even likely, that within ten years, the U.S. dollar will cease to become the reference currency for international transactions. The reason for this is that the U.S. government and American judges have politicized the dollar to an extreme in a world where the country backing it is no longer as dominant as it once was.
The United States is an arrogant power, which, like many other empires (and people), is witnessing its influence decline. Indeed, it is hastening this degeneration by wasting its political and symbolic capital, expending it as if the country still stood at the zenith of its glory.
Because of France, the first steps toward the beginning of the end of the dollar's hegemony could begin at the next G20 summit. Here's why: On June 30, the U.S. Federal Reserve backed a Justice Department and New York district court decision to punish the French bank BNP Paribas, one of Europe's biggest, for routinely violating U.S. sanctions on Iran, Sudan and Cuba. Besides fining the French bank almost $9 billion, the U.S. also suspended approval of its dollar transactions.
French President Francois Hollande is one of several heads of leading economic powers who believes that the United States has gone too far in politicizing the dollar, and he favors putting the topic on the G20 agenda. To punish those who violate U.S. economic sanctions exploits the fact that the dollar is an inevitable part of international transactions. It is one of the few subjects on which France, Germany and Russia publicly agree.
Taking its ball and going home
The United States is actually shooting itself in the foot and isolating its allies. Ironically, President Barack Obama, who pledged to reconcile the White House with the world, has barely managed to make a dent in the isolation his predecessor George W. Bush created.
The United States developed intelligent sanctions as a means of exerting pressure on foreign countries and institutions without resorting to military force. One maneuver it can use - and has with BNP Paribas - is to forbid banks from approving dollar transactions, which is otherwise just a formality in the normal process of international finances.
U.S. judges and government officials who are using this to punish those who defy their sanctions have a right to do so, of course. But it's a short-sighted tactic. To describe the problem simply, if the rich kid doesn't want his buddies to play with his new football, they will eventually look for another one - perhaps less fancy - and leave the rich kid to nurse his top-of-the-line toy alone.
This will take time, and the trend may revert. It is bold and difficult to prophesy this way. The dollar's options are not clear. And the euro, while it may not be in the abyss, is struggling to emerge from the bog of the European debt crisis. The RMB, or yuan, is subject to the excessive influence of the Chinese state. Some have suggested that the emerging economies could conjure up an alternative currency, especially after announcing they would start a development bank. But this wouldn't be possible because their economies and institutions aren't sufficiently stable.
If the world had to decide tomorrow on a new global currency, the most reasonable option would be the pound sterling, given its stability and the almost religious respect British institutions show it. If the United Kingdom were to seize the opportunity, its currency could supplant the dollar in fairly short order.