the United States accounted for nearly 40 percent of military expenditures by countries around the world in 2022-and the country now spends more on defense than the next 10 countries combined, with 750 overseas military bases spread across 80 countries. This intricate web of forces fortifies the dollar’s position, much like the Latin-speaking Roman priests once held a monopoly over the interpretation of Scripture, the right to collect and distribute the tithe and grant forgiveness for sin.


Origins of Dollar dominance in the global economic order

The American dollar is on our radar-for a good reason: it has become the centre of a raging debate between on one hand, those who see it as a declining currency and possibly subject to ultimate collapse versus on other hand, analysts, who shrug off any threat to its pivotal status. There have been two major reserve currencies in modern times: the British pound until World War II, and the American dollar for the past 75 years. Whereas technically the U.S. dollar could collapse, the chances of that happening any time soon are incredibly slim, but it is witnessing an undeniable decline. The nuanced perspective of the prominent radical economist and the author of many books, Michael Hudson (more from him later) is a pointer to the resilience of the dollar and it is only time that has the verdict. Hear Michael Hudson:

Nobody’s talking about the dollar’s demise because the United States will use dollars and American companies own affiliates all over the world. And of course they do their own business in dollars. They don’t do it in foreign currency. So nobody’s really talking about that. What really is happening isn’t simply a currency crisis. It’s not just a problem of not accepting the dollar. It’s the fact that America grabbed $300 billion worth of Russian foreign exchange reserves and told [America’s] satellite, the Bank of England, to grab Venezuela’s gold stock and turn it over to Mr. [Juan] Guaidó, who America said should be the Venezuelan president.

Unlike any other country in the world, the U.S. dollar has a special place in the global financial system. That’s because it is the global reserve currency. That means that it’s considered as the safest currency there is, with many other countries keeping U.S. dollars in reserve. Many global financial contracts are denominated in U.S. dollars, and many countries who have struggled to maintain a stable currency use U.S. dollars as their own national currency. Right now there are 11 foreign countries that use the U.S. dollar as their official currency. These include Panama, El Salvador, Zimbabwe and Timor Leste, little wonder there’s the concept of ‘dollar imperialism’.

Dollar imperialism

The term 'dollar-imperialism' was first invented soon after the end of the Second World War. to describe the policy of the USA in dominating and maintaining over distant lands through economic aid. G. Dunkel in his piece, “U.S. imperialism uses dollars to rule world economy” published on the platform of Workers World on December 30, 2019, reports on how: The whole structure of the world’s financial system — where every day, trillions of dollars, euros and yuan zip from bank to bank, from individuals to companies, to and from all sorts of institutions — reflects the domination of the U.S. dollar.

In the piece, “Finance, Imperialism, and the Hegemony of the Dollar”, published in Monthly Review-April 1, 2008, Ramaa Vasudevan provides the historical account of how:

In the aftermath of the Second World War, Britain’s imperial position was greatly weakened and it was facing significant payments pressures (owing more to the rest of the world than was owed to it). The United States, unscathed physically by the war, emerged as the largest creditor country with substantial foreign exchange reserves. However, in order for the dollar to play the role of the dominant currency, there had to be enough dollars to go around. Means had to be found by which war-ravaged Europe could finance (by accumulating dollars) its dependence on U.S. imports for reconstruction. The postwar world thus saw intense economic negotiations that reflected the tensions and contradictions of reshaping the international monetary system. Most prominent was the Bretton Woods Conference, which laid the basis for the new international order and the building of international institutions that, whatever their original purpose, institutionalized the dominance of the United States. This also involved preempting any resurgence of the British pound

The U.S. dollar has been able to gain and maintain this special status because of the strength of the economy. The U.S. is still the biggest economy in the world by far, with an annual GDP of $23 trillion. Second is China with $17.7 trillion, and way back in third is Japan with $4.9 trillion. As the CoinGeek Editorial of April 17, 2023 explains: For decades, it has maintained its status as the global reserve currency, wielding influence akin to the once-mighty Roman Catholic Church: an anchor of trust and cohesion that unites people from otherwise very different cultures. Countries across the globe hoard dollars as a store of value and utilize them for international trade, securing their place as the linchpin of the world economy for most of the last century.

How does the dollar preserve this exalted status? The answer lies in a confluence of factors: a stable political system, the sheer size of the U.S. economy, the vast network of global trade conducted in dollars. According to official estimates as shared by Peter G. Foundation, the United States accounted for nearly 40 percent of military expenditures by countries around the world in 2022-and the country now spends more on defense than the next 10 countries combined, with 750 overseas military bases spread across 80 countries. This intricate web of forces fortifies the dollar’s position, much like the Latin-speaking Roman priests once held a monopoly over the interpretation of Scripture, the right to collect and distribute the tithe and grant forgiveness for sin. But no empire lasts forever, hence the rumblings coming from various sources, notably the BRICS nations.

The BRICS challenge

The BRICS nations, an alliance comprising Brazil, Russia, India, China, and South Africa, represent a potent force in the global economy. As poetically couched by the editorial of CoinGeek on April 17, 2023: Much like the myriad threads that come together to form an intricate tapestry, these nations have woven into a cohesive alliance, poised to challenge the prevailing dominance of Western economic hegemony. Each member of this formidable group brings its unique strengths and resources to the table. Yet, they all share a common aspiration: to reshape the global financial landscape and assert their influence on the world stage. Undeniably, there is indeed a growing apprehension that the US dollar could potentially face a collapse as a result of the increasing use of BRICS currencies in global trade. A major online publication confessed to the fact that, “unlike competitors proposed in the past, like a digital yuan, this hypothetical (BRICS’ bric) currency actually has the potential to usurp, or at least shake, the dollar’s place on the throne”.

The weight of the BRICS coalition is duly appreciated by Foreign Policy as it acknowledges in its April 24, 2023 edition: It’d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, the United States, but the entire G-7 weight class put together, adding: If the BRICS used only the bric for international trade, they would remove an impediment that now thwarts their efforts to escape dollar hegemony. It can be seen therefore that the talk of de-dollarization is truly in the air. Among noticeable initiatives, Russia is now spearheading the development of a new currency. The magazine then went ahead to pose the question: Is it realistic to imagine the BRICS using only the bric for trade? Its answer: Yes. For starters, they could fund the entirety of their import bills by themselves. In 2022, as a whole, the BRICS ran a trade surplus, also known as a balance of payments surplus, of $387 billion – mostly thanks to China.

Add to the foregoing as done by Foreign Policy Magazine:

Because a BRICS currency union—unlike any before it—would not be among countries united by shared territorial borders, its members would likely be able to produce a wider range of goods than any existing monetary union. An artifact of geographic diversity, that is an opening for a degree of self-sufficiency that has painfully eluded currency unions defined by geographic concentration, like the Eurozone, also home to a $476 billion trade deficit in 2022.

Already, China and Russia are trading in their own currencies. Beijing and Brazil have also dropped the dollar in bilateral trade. The UAE is selling China its gas in yuan, through a French company. Southeast Asian nations in ASEAN are de-dollarizing their trade, promoting local payment systems. Not surprising, this unfolding reality before our very eyes has elicited divergent reactions, ranging from attitudes of: celebration of the dollar decline through to a denial of such a decline and its negative impact on America.

Reactions to the unfolding scenario

On the side of defenders of the dollar is the Economics Noble Laureate, Paul Krugman, the kernel of whose argument is that, there’s no reason to be terrified of the consequences if the dollar should lose its special international status. He concedes, nonetheless, that: it’s true that with the rise of China there are now two bona fide economic superpowers. So it may seem plausible that the yuan could pose a challenge to the dollar. In his blatantly ideological treatise, “Wonking Out: International Money Madness Strikes Again” shared in The New York Times edition of April 17, 2023, Paul Krugman averred that:

The dollar has three big advantages. One is incumbency: Since everyone is already using dollars, it would take exceptional circumstances to get them to switch. A second is that U.S. financial markets are open: Unlike China, we don’t impose controls on people trying to move money into or out of the country. The third is the rule of law. Unless you’re a dictator planning to commit major war crimes, you needn’t fear that the U.S. government will impound your assets; in China, your assets may be at risk if you say something the strongman in charge doesn’t like. Why, then, all the panicky commentary about the dollar?

In a similar vein, as captured by an online reporter, Theron Mohamed-on Sunday, May 7, 2023 posted on website: “Warren Buffett isn't worried about the US dollar losing its status as the world's reserve currency . . . "We are the reserve currency, I see no option for any other currency to be the reserve currency," the famed investor and Berkshire Hathaway CEO said during his company's annual meeting on Saturday. Buffett sounded unconcerned about the risk of "de-dollarization," or other countries relying less on US dollars. However, the billionaire executive cautioned the US government against eroding the dollar's value by spending too much and fueling inflation.

A team of high-ranking defenders of the dollar- Ozge Akinci, Gianluca Benigno, Serra Pelin, and Jonathan Turek of the Federal Reserve of New York, in their paper: “The Dollar’s Imperial Circle”, published as Federal Reserve Bank of New York Staff Reports, no. 1045 December 2022 argued that:

There are two key asymmetries that are central to the mechanism we focus on [the role of the dollar in the international trading system]. The first asymmetry arises from the global use of the dollar in the international monetary system along different dimensions that exceed the relative size of the U.S. economy within the global economy. The second asymmetry occurs as the U.S. economy has relatively limited exposure to developments in the world economy compared to its trading partners so that the dollar sensitivity to foreign development is smaller.

On The Real Economy Blog, Joseph Brusuelas boastfully entitled his write up: “Why the dollar remains the world’s reserve currency, and will stay that way”-followed with the assertion that: “the recent discussion around the end of the dollar’s dominance is bereft of any linkage to the reality of international finance”. That was on April 17, 2023

It is interesting to read a rebuttal of Paul Krugman’s position in the Political Economy Report on May 10, 2023, headlined: “NY Times is wrong on dedollarization: Economist Michael Hudson debunks Paul Krugman’s dollar defense”-with the note: Economist Michael Hudson responds to the misleading arguments against de-dollarization that New York Times columnist Paul Krugman made in his attempt to defend US hegemony and the dollar system. There is a full video of the conversation in accompaniment-with the first major question being: So what do you make of Krugman’s arguments? Hudson’s answer is unsparing: “It’s not a straw man argument; it’s deliberate ignorance. You have to really have tunnel vision and not understand the most basic economic history to make the misrepresentations that Krugman said. Well, the United States doesn’t owe a foreign currency debt. America’s debts are in dollars and it can always print them. It doesn’t have to throw them on the exchange market to buy rubles or yen or other currencies . . . So Krugman doesn’t understand the difference between paying a domestic debt and paying a foreign debt. And that’s because he doesn’t understand foreign trade.

If he understood foreign trade and debt, he never could have won a Nobel Prize. A precondition for winning the Nobel Prize is not to understand how international finance works so that you can act to preserve the kind of financial superstition that’s taught in the universities like the University of Chicago. I suggest a second reading of Hudson’s response as it touches the essence and logic of the prevailing world economic order.

On April 6, 2023, in a piece posted by the renowned journalist and public commentator, Ben Norton triumphantly declared on the platform of Geopolitical Economy Report: The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar. China, Russia, Brazil, India, ASEAN nations, Kenya, Saudi Arabia, and the UAE are now using local currencies in trade.

In a critical vein, the following monologue by the Argentinian President is reported as being: “Every night,” he said, he asks himself “why all countries have to base their trade on the dollar.”

Alex Richardson reporting for The Daily Hodl on May 7, 2023, recalled the assertion by Ex-JPMorgan Executive, Veteran investor Jon Wolfenbarger that the “success of BRICS would hurt US living standards and diminish America’s global standing” as they “now have the power to dethrone the US after decades of irresponsible economic policy by the American government”. His overall assessment is that:

If the BRICS are successful and the US does not change its policies to focus on a stronger dollar, less spending, and peace instead of war, it is possible the dollar will slowly lose its ‘reserve currency’ status. This would hurt US living standards and lead to less power for the US government, similar to the weakening of the UK after World War II. All empires in history have failed, and the US will not likely be an exception – if the BRICS can create a successful hard currency to compete with the dollar.

Irrespective of personal biases, there are objective consequences to the fate of the dollar coming under the threat of a decline at the best and a collapse at the worst.

Fallouts and the future

As alluded to earlier, we need to bear in mind the fact that the British pound was once upon a time an international currency, and one as dominant as the dollar later became. As graphically illustrated by perhaps the staunchest defender of the American dollar, Paul Krugman- in an anecdote: When Phileas Fogg set off to go “Around the World in Eighty Days,” he traveled with a carpet bag full of pound notes, because he knew that British currency would be accepted anywhere. But the pound’s international role rapidly declined after World War II, essentially disappearing by 1970.

One of the most obvious benefits of being a global reserve currency is that it reduces borrowing costs: As the world reserve currency, the US dollar benefits from high demand, which allows the US government to borrow money at lower interest rates than other countries. This reduces the cost of servicing the national debt and allows for greater spending flexibility.

From the other side for America, the real disadvantage of losing reserve status would be geopolitical. This is in the sense that, the U.S. would no longer have the ability to project power globally via the financial system. A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost of imported oil, causing oil prices to rise. This means a dollar buys less gas and that pinches many consumers. Paradoxically, a weak dollar can be a good thing for U.S. firms who want to sell goods in foreign markets. Because foreign products and services become relatively more expensive, U.S. products and services become more competitive overseas.

At a highly aggregative level, Abdurrahman Arum Rahman Founder of Global Currency Initiative, Indonesia, in “The Imperialism of International Currency”, published in Munich Personal RePEc Archive on January 14, 2022, made the instructive submission that:

The use of certain countries' currencies as international payment instruments gave birth to global exploitation. The country that owns the currency can exploit and profit at the cost of the user countries. Experts call this “exorbitant privilege”. In the 1960s, Valéry Giscard d'Estaing coined the term exorbitant privilege (privilege exorbitant: France) to describe the privileges that the owner of an international currency has over other countries. Furthermore, the US exorbitant privilege comes from and at the expense of countries around the world that use the US dollar. The US can consume beyond its capacity. The US can get cheap funds and resources from all over the world. More than that, the US can impose its fiscal deficit on the whole world. Since this privilege does not come from space or other planets, but from other countries and at the expense of them, we call it “exploitation” or “imperialism”.

A logical question is: What happens if U.S. dollar is no longer world reserve currency? If this happens, some lessons would have registered, including the fact that no empire lasts forever and that an emperor must learn to resist the temptation of wielding power arbitrarily. Meanwhile, in the spirit of pan-Africanism, my abiding concern is the fragmentation of the continent’s economies that blight the hope of a strong currency and the relaxation of our dependency on the dollar and indeed any foreign non-African currency. I come in peace, please.






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