It is a critical first step that the financial policymakers of the United States have acknowledged the need for a CBDC, but that realization is not enough. 

U.S. complacency regarding the dollar global reserve currency status could be the ultimate Achilles Heel for the United States in the years ahead. 

Wielding a uniquely US economic authority is a significant capability in its foreign policy toolbox. However, retaining it will require a concerted effort.

When wielded effectively, U.S. sanctions have weakened targets like Iran and North Korea without impacting the global economy. But against authoritarian heavyweights like Russia and China, this may no longer be the case. America’s policy options are narrowing.

In this episode of Dollar & Sense, David Dollar is joined by Michael Greenwald, a fellow at the Harvard Kennedy School’s Belfer Center who helped design sanctions programs at the U.S. Treasury, to discuss the effectiveness of these tools and why they need to be updated for an era of great power competition.

While New York, London, and Hong Kong will continue to play outsized roles in international business, their current privileged status may be more precarious than it seems.

In the long run, despite more advanced payments technology, it will be incumbent that China pursue further liberalization to render its currency more attractive.

If left unchecked, Beijing’s aggressive use of its “rules” threatens to turn Western firms into the Communist Party’s enforcers.

Should INSTEX itself be sanctioned, it would be a powerful signal to the rest of the world. In this scenario, critical dollar-denominated trade not currently facing sanctions, but at potential risk of being sanctioned in the future, could migrate to third party currencies, transferred through sanctions-resistant entities to an INSTEX-like body.

Michael Greenwald writes that with the recent change of leadership at the European Central Bank, the euro likely has a bright future ahead.