This week we watched an unusual spectacle. The foreign minister of Germany, one of the United States’ closest allies, went to Tehran and announced that a European payment system, designed as an alternative to the dollar-based one, would soon be ready. This visit was made in coordination with Britain and France, both of which helped create the new payment mechanism, called INSTEX.
INSTEX will probably fail or prove to be wholly inadequate in the short term. The dollar’s dominance in global transactions — which has been a huge benefit for the United States — will be hard to displace, but INSTEX is a warning sign, the canary in the coal mine. The United States’ closest allies are working hard to chip away at a crucial underpinning of U.S. global power.
Why? It’s simple: the Trump administration’s abuse of this power. The United States sits atop the world for now, but there are forces eroding that lofty status. Some of these are deep structural shifts, such as the rise of China. But as the Economist points out, others are reactions to a pattern of hegemonic abuse.