A Chinese bank employee counts 100-yuan notes and U.S. dollar bills at a bank counter in Nantong in China’s eastern Jiangsu province on August 6, 2019.

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U.S. Treasury Secretary Steven Mnuchin on Saturday rejected the suggestion that the Trump administration is weaponizing the dollar through its trade-restricting policies with other countries.

“Let me be clear: we are not weaponizing the U.S. dollar,” Mnuchin told CNBC’s Hadley Gamble at the Doha Forum in Qatar. “If anything I would say the opposite; I take great responsibility that people use the dollar as the reserve currency of the world, and the dollar is quite strong — sometimes the president says the dollar is too strong.

“The dollar is strong because of the U.S. economy and because people want to hold dollars and the safety of the U.S. dollar. So because of that, we take sanctions responsibility very seriously — as a matter of fact, I personally sign off on every single piece of sanction that we do.”

Officials in China and Europe have been actively promoting their currencies as substitutes for the dollar when it comes to both reserves and transactions, particularly in the face of expanding U.S. sanctions and protectionist trade policies like tariffs.

The Trump administration has imposed sweeping sanctions including on dollar trade with Iran, North Korea and others in an effort to pressure state actors to rein in behavior that Washington deems destabilizing and against its interests. According to the Treasury Department, there are 6,300 Specially Designated Nationals and more than 20 countries against which some type of U.S. sanctions are in place.

This has stunted the ability of European allies and others to trade with Iran, among other countries and entities. So some states are therefore looking to euros and other alternatives — including Chinese renminbi and cryptocurrencies — to carry out trade free of U.S.-imposed restrictions.

Earlier this year, France, Germany and the U.K. set up the Instrument in Support of Trade Exchanges (INSTEX), which uses euros to bypass U.S. sanctions on Iran. While it’s not shown itself to be economically effective, it’s a sign that even allies are seeking dollar alternatives to rebel against U.S. policies they oppose.

Russia’s central bank has also been trying to reduce the number of transactions conducted in U.S. dollars, either for domestic payments or foreign trade, since 2013.

And in 2016, China’s renminbi was added to the International Monetary Fund’s Special Drawing Rights basket in 2016, along with the dollar, euro, yen and British pound, something the IMF said “enhances the attractiveness of the RMB as an international reserve asset.”

Still, just to highlight one sector, 80% of European energy imports are settled in dollars — something that European Commission President Jean-Claude Juncker in 2018 called “absurd.”

An ‘alternative for world military conflicts’

Sanctions like those on Iran, Mnuchin said, are used in order to avoid potential war.

“The reason why we’re using sanctions is because they are an important alternative for world military conflicts. And I believe it’s worked,” the secretary said. “So whether it’s North Korea, whether it’s Iran or other places in the world, we take the responsibility very seriously.”

There is debate as to whether the administration’s ‘maximum pressure’ policy on Iran is working to meet U.S. objectives. While it has certainly crippled Iran’s economy, currency and its ability to export oil, its involvement in conflicts around the Middle East has not subsided, and provocative attacks the U.S. and its allies have attributed to Iran have increased.

While the dollar looks set to retain its preeminence in global markets, Mnuchin admitted that there has to be a balance in setting policies that police international trade.

“People don’t have to use the dollar, we have the right to put restrictions on people using the dollar. And over a long period of time, if we’re not careful, people will look at using other currencies.”

Indeed, the dollar’s role as the premier reserve currency is receding — though very slowly.

The dollar’s share of foreign reserves decreased from a high of 73% in 2001 to 62% at the end of 2018, according to IMF data. And the World Gold Council reported that central banks bought more gold in 2018 than at any other time since the gold standard ended in 1971, wrote James McCormack, an analyst for Fitch ratings, in June of this year.

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