The U.S. dollar is getting perilously close to losing its status as the world’s reserve currency, and there is less room than ever for error on the international stage. Blunders in U.S. foreign policy are likely to have more harmful effects on both our allies and our enemies than in the past given the sorry record of the Biden administration.  Should the U.S. dollar be knocked out of its position as the reserve currency, hell would break lose across global markets. 

With recent memories of Biden’s humiliating and bungled withdrawal from Afghanistan, there is less confidence in the reliability of the United States from our allies, and far less respect and fear of the United States from our enemies. It’s self-evident that the powers behind Biden favor prolonging the Russia-Ukraine war, rather than promoting an expedient end to hostilities, because the ongoing conflict dominates U.S. media and diverts Americans’ attention away from disastrous domestic policies and breaking high-stakes scandals and prosecutions of Democrats and their deep state operatives.  

The blame for the Russian-Ukraine war lies with both Russia and the United States and NATO countries.  When the Soviet Union broke up in 1991 and Ukraine gained its independence and agreed to dismantle the nuclear arsenal that the USSR had deployed there in the Cold War years, it was understood that Ukraine would remain a neutral country, and that was formalized in the Budapest Agreement of 1994.

Ukrainian instability over the last eight years has had three major causes: 1) A pervasive corruption in which the country became a haven for money laundering and human trafficking; 2) a disproportionately large influence from neo-Nazis on Ukraine’s politics and a growing presence in the Ukraine military; and 3) the unrest of pro-Russian separatists in the Donbas region of Ukraine and cross-border special military operations by the Russians that date back to 2014.  

America’s contribution to provoking Russia’s military action in Ukraine stemmed in part from Moscow’s unanswered concerns that the U.S. was funding biological research laboratories in Ukraine, which started well before 2014. The presence of these biolabs was confirmed in early March by U.S. Under Secretary of State Victoria Nuland, who acknowledged that the U.S. military-industrial complex has funded 26 such labs in Ukraine and that they were among the targets of the Russian invasion. After the COVID-19 epidemic it’s understandable that Moscow demanded these biological weapons sites be shut down. The failure of the U.S. to respond to those concerns was a contributing factor to heighted tension between Russia and Ukraine. In the end, cavalier overtures from United States and other NATO members providing encouragement about the prospect of Ukraine joining NATO may have been the tipping point for the Russian special operations incursion into Ukraine in February.  

The fact is that these activities from both sides were in violation of the 1994 Budapest Agreement, the core of which was a commitment to honor and maintain Ukraine’s neutrality.

When Putin undertook special operations in Ukraine the Biden administration retaliated by imposing sanctions, cutting off trade, and blocking Russia from being able to move money through the western Swift banking system. After Mastercard and Visa suspended operations in Russia, Moscow negotiated a deal with China’s UnionPay system, the world’s second largest and fastest-growing global credit card network. And now, almost all Russia’s major banks are rolling out UnionPay credit cards. China wins, America loses.

Moscow has also responded to America’s efforts to isolate Russia by offering its oil to China and India -- the number two and three oil consuming countries in the world -- at a 20% and more discount to OPEC oil prices, with Chinese purchases being made in Chinese yuan, not the U.S. dollar. Why is this significant?

People forget that President Nixon devised a new backing for the U.S. dollar after he abandoned the gold standard and the convertibility of dollars for Fort Knox gold in 1971. He astutely made a deal to guarantee military protection of Saudi Arabia, the dominant OPEC country, in exchange for Saudi Arabia’s agreement to standardize all oil trading in U.S. dollars.  This creation of the “petrodollar” demand enhanced the reserve currency status of the U.S. dollar and enabled the U.S. to run higher and higher deficits without fear of dollar devaluation for almost the next four decades.

Nothing remains static, and in the last ten years China, Russia and Brazil have made banking and credit arrangements in non-dollar currencies, with the Chinese yuan being chosen as a substitute for the dollar.  China also signed a currency swap agreement with the United Arab Emirates which effectively enables the trading of oil in yuan. Now China is circumventing the dollar by buying Russian oil in yuan. And Saudi Arabia, the leader of OPEC, is distraught by the prospect of the Biden administration’s stated intention to revive the nuclear deal with Iran, which is Riyadh’s archenemy. Assisting an adversary of Saudi Arabia that could undo the petrodollar is so crazy that it raises the question of who is behind such ideas.  

All this comes at a time when America’s debt has soared to $30.5 trillion, which is a debt to GDP ratio of 132% -- an unthinkable level just a few years ago. While perpetual deficits and accumulating debt are contributing factors behind our current inflation, the greater concern should be the approaching precipice of a debt and dollar collapse. What is needed now is new leadership in Washington that has the courage to do the right things for the right reasons and puts the American people first.

Scott S. Powell is senior fellow at Discovery Institute. His acclaimed book, Rediscovering America, has been Amazon’s #1 new release in the history genre for eight straight weeks and remains a bestseller.  Reach him at scottp@discovery.org

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