American officials must be familiar with the law of unintended consequences – the phenomenon where actions or decisions produce outcomes that were neither intended nor foreseen.
After all, the law was first observed by Robert Merton, an American sociologist.
The law has become the nightmare of decision makers in politics, business and social policy.
The hallmark of excellence in decision making has become the ability to predict as much as possible, the unintended consequences of one’s actions and policies.
As this law goes, the decision of the US government to weaponise the reserve currency status of the dollar through sanctions will become a reference point for years to come.
Following the collapse of the Soviet Union in the early 1990s, a unipolar world dominated by the United States emerged.
This also led to the strengthening of western institutions and economic platforms.
The world embarked on globalisation as Western businesses took advantage of a unipolar economic system to build multinational operations (and may one say, reap bountiful profits).
Although globalisation expanded and consolidated Western economic influence, it also became the wind in the sail of China’s rise to economic superpower status.
Americans woke up late to discover that China has become not just an economic but also a political, technological and military super power.
The US then decided to contain China, but this came very late.
At the same time, the North Atlantic Treaty Organisation (NATO), a military alliance set up to counter the Soviet Union in the European geopolitical space, expanded to take in former Soviet states.
Despite promises to then Russian leaders that NATO will not expand into Eastern Europe, American officials saw Russia, the successor state of the Soviet Union, as too weak to resist the breaking of their word on the expansion.
NATO has since expanded to the borders of Russia.
While NATO kept arguing that it was a defensive alliance, its actions in Yugoslavia, Libya and Syria painted a different picture.
The Russians started to feel threatened, especially after a street protest overthrew the democratically elected government of Ukraine and brought in pro-American leadership.
Without the demise of the Soviet Union and the Warsaw Pact that NATO was set up to counter, it begged the question of the rationale for the continued existence of the organisation.
It is in this conundrum that Russia decided to invade Ukraine, ostensibly to forestall any chance of NATO following up on the pledge to admit Ukraine and Georgia into its fold.
The US and the European Union decided to jump into the fray by arming Ukraine and imposing the harshest sanctions in modern history on Russia.
The word is not yet out on what the US strategic goals are.
Some say it is to weaken Russia, others say it was to bring about regime change and produce a Russian leadership that would stay under the Western orbit of influence.
Whatever the goals, the unintended outcome is undermining the position of the US dollar as the global reserve currency.
In more ways than one, it is a failure of Western policy makers that they did not foresee this own goal.
One, Russia is one of the two countries in the country that can survive all types of sanctions, even it was imposed by the entire world. It is one of the two countries that can practise autarky or self-reliance.
The other is the United States.
To be in this position, the country needs to be self sufficient in energy, food and military technology.
Russia is the world’s largest producer of gas, producing 576 million tonnes of oil equivalent (MTOE) per year.
It is also the second largest producer of oil after the US.
It is a major food producer and exporter, accounting for 9.7 per cent of global wheat output. It is equally rich in key minerals. This not only means that Russia could survive on its own, it also means that it was too important to the global supply chain to be sanctioned.
Two, cheap Russian gas was partly responsible for the economic competitiveness of Europe.
Without piped gas discounted at up to 30 per cent, a high wage economy like Germany would not be competitive with a low wage economy like China in manufacturing.
Also, the dollar maintained its status as a reserve currency because it was underpinned by the world’s energy resources, hence the moniker ‘petrodollars’.
Any currency is simply a unit of account or mere piece of paper. Its value lies in the production of goods and services for which it is accepted in exchange.
In other words, if the Russians no longer wanted the dollar as payment for oil, it will wear off the value of the currency.
Worse, the US decided to freeze $300 billion of external reserves Russia held in US dollars.
The US and EU also froze deposits by Russian businesses and persons.
This caused panic around the world. It means that if a country’s leadership disagrees with the US government, then their wealth can be seized. No enemy of the United States would have written a better script.
Worldwide, countries have lost faith in the US dollar.
They are moving to other currencies like the yuan.
It is only a matter of time before a multi-polar basket of reserve currencies emerges.
The sanctions against Russia have produced an unintended outcome.
How right was Robert Merton?