NOIDA (CoinChapter.com) — Biden’s government proposed creating a $50 billion investment vehicle to its G7 allies to help Ukraine during the ongoing Russia-Ukraine crisis. The Biden government plans to use the profits from frozen Russian sovereign assets to back the bonds in the investment vehicle. Many think the commitment will “kill” the US dollar.
According to a Bloomberg report, more than two-thirds of the frozen Russian assets are in the European Union, generating $3.6 billion in annual profits. Ukraine’s international bonds emerged as the biggest gainers on March 21.
However, the Biden government’s plan could be the death of the US dollar.
Biden Could “Kill” The US Dollar For Ukraine
Gabor Gurbacs, the Pointsville founder, commented on the news of the Biden government’s financial maneuvers concerning Ukraine. Gurbacs noted that the proposed $50 billion bond could be the “kiss of death” for the dollar.
Moreover, Gurbacs claimed that employing $280 billion of frozen Russian central bank assets in this way could undermine global confidence in the US dollar.
Furthermore, suppose the G7 and EU agree to the Biden government’s plan. If that were the case, other countries might perceive it as a politicized or extrajudicial move, which could lead nations to seek alternative reserve currencies. As a result, the US dollar’s global dominance would weaken substantially.
US Treasury Secretary Janet Yellen has also supported liquidating frozen Russian Central Bank assets for Ukraine’s benefit. Critics like Gurbacs argued this could erode trust in the US financial system and the security of assets within it.
Using Sovereign Funds
Using another country’s sovereign, albeit frozen, assets should not be a precedent the US wants to set as it could lead to complex geopolitical issues. In ethical terms, what Biden’s government proposes is tantamount to theft.
Sovereign immunity laws typically protect sovereign assets, shielding them from seizure in most circumstances. The Biden government’s unilateral use of frozen Russian assets could appear to breach international law and norms regarding sovereign immunity.
Moreover, trust in the US financial system and governance strengthens the dollar’s status as the leading global reserve currency. Politicized or extrajudicial redirection of sovereign assets might trigger concerns over asset security in the US financial system.
The Dollar Remains Strong For Now
When and if the dollar loses its status as the leading reserve currency of the world, demand will severely decline. Furthermore, the dollar’s loss of reserve status would lead to reduced capital access, higher borrowing costs, and lower share prices in the US.
The US dollar has remained relatively strong despite challenges, including inflationary pressures. Factors such as Federal Reserve interest rate policies and the overall economic outlook have influenced its performance.
After a massive bull run in 2022, the dollar weakened in 2023. However, the currency has maintained its strength relative to other major currencies, which is visible from the index forming consecutive higher lows.
Amidst the Federal Reserve’s credibility and the US’s inflationary environment, the Biden government’s move to fund Ukraine’s war may or may not kill the US dollar, but it would certainly impact its value and position.
Additionally, if approved, the move would surely impact the G7’s relations with other nations.
