Certain western countries - the US chief among them - continue to threaten Putin on Ukraine. USleaders publicly show strong interest even though the situation has no net positives for the USeconomy. In addition to containing no net positives, the US meddling in Russian area poses significant downside risks.
Of the many potential downside risks, foremost among them is the loss of the dollar as the world's reserve currency.
How could US actions against Russia lead to loss of the dollar as the world's reserve currency?
Here are three scenarios.
(If one gets creative, the end of US dominance could come in many other forms based upon other triggers.)
First, Russian and Chinese leaders, in conjunction with Middle Eastern oil selling countries, could simply scrap dollars. Done cold turkey, the strategy would not work, simply because many contracts are already written in dollars and other western countries would not simply accept such disruption. Done in an efficient, determined manner, the strategy would work. Essentially, any new contracts would not be denominated in dollars. If Putin pulls the grim trigger strategy - and gets Chinese leaders to go along with him - the dollar is likely finished.
Critics of this strategy would simply argue that US-based businesses could demand purchases be priced in dollars. Unfortunately, a concerted effort not to give in to such demands would likely work. USbusinesses and consumers are more dependent on Chinese exports and Middle Eastern oil than Chinese/Middle Eastern businesses are for US consumption. The growth of the emerging economies make for readily available demand.
Second, European leaders, governing an electorate already tired of American dominance, could simply conclude that it's not worth the cost of challenging Russia in Ukraine. European leaders could then decide to challenge the dollar as the world's reserve currency, which would certainly work if Russia and China went along. They could also simply observe the standoff between the US and Russia rather than getting involved.
Third, a polarised US constituency could simply give up the currency of their government, essentially agreeing that their valueless federal government is not worth supporting.
Overall, reserve currencies do not last forever. The dollar has been the world's reserve currency for around a little over a century, about as long as the pound lasted. Should Russian, Chinese, or European leaders opt for a more a more reliable world reserve currency, the end of the dollar would soon. The external-driven demise of the dollar is perhaps the most likely way the dollar would lose in dominance, although the end could be driven by an internal deep-seated disgust with the American government overall.
