OPINION | Too many sanctions may inadvertently chip away at the might of the US dollar

The dollar will remain critical for India’s financial architecture for the foreseeable future.

Over the past year, Washington has repeatedly expanded its sanctions regime—tightening restrictions not only on Russia and Iran but also on intermediaries in West Asia, Central Asia, Africa, and East Asia. The pattern is familiar: unilateral measures announced by the US Treasury’s Office of Foreign Assets Control, backed by sweeping secondary sanctions that extend far beyond American borders.

Not an aberration, it’s structural

While none of these actions is surprising in isolation, their accelerating frequency and unprecedented extraterritorial reach are now raising more structural questions.

For countries like India—which neither participates in unilateral sanctions nor considers them legitimate instruments of global governance—the implications are not ideological. They are commercial, financial, and systemic.

At the heart of this lies a simple reality: secondary sanctions bite only because the US dollar remains the backbone of international trade, settlement, and financial clearing. And the more Washington uses that leverage to shape global commercial behaviour, the more it prompts the world to look for alternatives.

Why secondary sanctions matter more than ever

Primary sanctions traditionally apply only to US persons and entities. Secondary sanctions, however, compel non-US entities—foreign banks, insurers, refiners, logistics providers, and commodity traders—to align with US policy positions or face exclusion from the American financial architecture.

The US has no legal sovereignty over foreign firms that conduct no business on US soil. Yet its leverage stems from a structural fact: almost every dollar transaction somewhere touches a US correspondent bank or clearing system.

For India, this creates immediate operational constraints. Even though India does not recognise unilateral sanctions, its refiners, banks and shipping partners must review exposure to any party designated under US rules. They do so not because of law, but out of prudence—because losing access to the dollar system, even temporarily, is a risk no globally integrated economy can absorb.

The result is a cascading effect on supply chains, financial transactions, and commercial planning. Oil trade, shipping insurance, technology procurement, banking channels, and energy settlement methods all require continual recalibration.

The weaponisation debate

For years, American financial power rested on two pillars: the centrality of the dollar, and the perception that this power would be used with restraint and within a predictable rules-based framework. That perception has eroded.

What began as targeted sanctions aimed at counterterrorism or nuclear non-proliferation has expanded into measures affecting energy flows, logistics corridors, rare-earth supply chains, fintech networks and third-party intermediaries with only indirect exposure to sanctioned nations.

This shift has strengthened the argument that the US is weaponizing global dollar dependence. It is not just regulating American firms; it is shaping the commercial choices of sovereign countries, even when their transactions violate no UN Security Council mandate or multilateral rule.

For many emerging economies, this is not merely a policy concern—it is a strategic vulnerability.

The unintended push toward de-dollarisation

Here lies the paradox: the more the US deploys secondary sanctions, the more it encourages other countries to diversify away from the dollar. Not in headline-grabbing moves, but through incremental, practical adjustments.

Several shifts are already visible:

* Growth in national-currency trade: India-UAE settlements in rupees, China-Russia settlements in yuan and roubles, Brazil-China trade in yuan/reais, and similar moves across ASEAN and Africa.

* Emergence of alternative payment systems: real-time local currency settlement platforms that bypass the traditional dollar-clearing circuit.

* Local-currency commodity contracts: including yuan-denominated oil trades and rupee-based settlement mechanisms for select partners.

* A multilateral conversation about alternatives: whether through BRICS currency discussions or regional currency-pool initiatives.

None of these individually undermines the dollar. But collectively, they represent a growing desire to hedge currency dependence and reduce exposure to geopolitical risk.

It is no coincidence that de-dollarisation discussions have intensified precisely during a period of unprecedented sanctions activism.

India’s position: Pragmatic, not ideological

India does not seek confrontation with the US, nor does it aspire to challenge the dollar’s supremacy. The dollar will remain critical for India’s financial architecture for the foreseeable future.

However, repeated exposure to sanctions-related uncertainty—whether in crude procurement, shipping, gold imports, technology contracts, or cross-border payments—has strengthened India’s resolve to broaden settlement options. This is not about weakening the dollar; it is about strengthening economic resilience.

India’s approach has therefore been two-fold. On the one hand India has been managing short-term operational risk by ensuring compliance where necessary, adjusting supply chains, and safeguarding access to global dollar markets. On the other, India is also trying to build long-term buffers through mechanisms such as rupee-settled trade, diversified banking channels, expanded use of local currency pairs, and participation in alternative payment corridors.

This is a calibrated strategy, informed by both economic realism and geopolitical awareness.

The global mood is shifting

The dollar remains dominant—but dominance does not guarantee permanence. Financial primacy is underwritten by trust, predictability, and a perception of fairness. When sanctions become broader, more frequent, and more arbitrary in their extraterritorial effects, even America’s closest economic partners begin exploring hedges.

Freezing sovereign reserves, threatening disconnection from SWIFT, blacklisting foreign banks, and designating overseas commodity traders all carry short-term geopolitical benefits. But they also reinforce a long-term message: overdependence on the dollar is risky.

That message is resonating across the Global South. Countries are not plotting to dethrone the US dollar. They are preparing for a world where geopolitical disruptions could spill over more sharply into financial channels. Diversification is not resistance; it is insurance.

Conclusion: A slow but steady evolution

Washington’s financial power remains immense. But the durability of that power depends on how it is exercised. The expansion of secondary sanctions—now touching everything from energy and shipping to fintech networks and commodity trade—is inadvertently encouraging the world to invest in alternatives.

If the global currency landscape evolves away from exclusive dollar dominance, it will not be because countries set out to challenge the United States. It will be because the United States overused its most potent tool—turning what was once an asset of unmatched strategic advantage into a catalyst for diversification.

The shift is gradual, not revolutionary. But it is unmistakably underway.

(Shishir Priyadarshi is former Director, WTO, and President, CRF.)

Views are personal and do not represent the stand of this publication.