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Say the U.S. wanted to punish or disable some foreign power that had lots of U.S. dollar reserves. Don't those foreign power reserves sit on a ledger (or a Federal Reserve chartered bank's ledger) somewhere that the U.S. Federal Reserve could just set to zero or otherwise seize?

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    do you suppose that might affect the value of the other held assets, just a touch? It seems like your asking "couldn't a husband punch his wife in the nose?"; sure but there might be undesirable side-effects.
    – dandavis
    Aug 1 at 22:30
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    My question is literal, like is there anything physically stopping the Federal Reserve from doing this, like in a war-type scenario. Aug 1 at 22:34
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    oh, in that case, no, and we've frozen assets before, eg. carter+iran 1979...
    – dandavis
    Aug 1 at 22:41
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    Are you asking if they can freeze money that is in the control of the federal reserve or asking if they can freeze money anywhere in the world?
    – Joe W
    Aug 2 at 1:26
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    @dandavis But, this question is regarding the Federal Reserve. Those assets were frozen by president Carter... The Fed is not exactly a part of the executive branch.
    – Avatrin
    Aug 2 at 8:29
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Say the U.S. wanted to punish or disable some foreign power that had lots of U.S. dollar reserves. Don't those foreign power reserves sit on a ledger (or a Federal Reserve chartered bank's ledger) somewhere that the U.S. Federal Reserve could just set to zero or otherwise seize?

No.

The U.S. government under the contracts clause, which was devised in large part to prevent punitive governmental action directed at foreigners participating in U.S. commerce, cannot simply cancel or seize the assets of a foreign holder of U.S. assets because it wants to, and the Federal Reserve certainly lacks that power in its own right.

The U.S. government (apart from the Federal Reserve) could, however, declare war upon a country, or bring suit against it and obtain a court judgment, and seize those assets as an act of war, or to enforce a court judgment.

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Partially.

All dollar transactions are going through the US bank system - so the US can block particular dollar transactions. For example, by formally "freezing" accounts for some reason.

So, it, of course, cannot cancel - because account may be in some bank of other country. But it can definitely push this bank to block the particular account by freezing(or threatening to freeze) bank's correspondent accounts in the US banks.

That is the origin of de-dollarization process launched by some countries.

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  • Thanks. How are dollars held in a foreign bank that isn't chartered or run by the Federal Reserve? Like, how does the Federal Reserve stop them from showing up one day and saying "We checked our ledger and we have 1 trillion US dollars", there has to be some mechanism by which the Fed Reserve can say "no you don't and we have the proof right here" Aug 2 at 17:07
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    Very simple. You might claim whatever, but transactions from this account would go through the US financial system. Which would not accept them, if you claim something wrong. Also, such "claim" may lead to disconnection that particular bank from SWIFT. Aug 3 at 3:32
  • Cash transaction don't, actually go that route. See how Iran has been paying Russia with dollars in suitcases.
    – Fizz
    Aug 4 at 10:57
  • Cash - of course, but we're not talking about cash here, as I understand. In fact, you almost cannot control cash in any currency not only US dollars. Aug 4 at 12:21
  • But the OP asks about CANCELLING dollars held by other countries, which is an entirely different thing from freezing assets. To take an existing case, the Iranian assets frozen by the US still exist (and IIRC generate income that is likewise frozen). They could be unfrozen, given a change of government in either Iran or the US.
    – jamesqf
    Aug 5 at 1:16

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