Goodbye to the Dollar

by Chris Hedges TruthDig Feb 4, 2019

The inept and corrupt presidency of Donald Trump unwittingly triggered the fatal blow to the American empire—the abandonment of the dollar as the world’s principal reserve currency. Nations around the globe, especially in Europe, lost confidence in the United States to act rationally (much less lead) in issues of international finance, trade, diplomacy, and war. These nations are quietly dismantling the seven-decade-old alliance with the United States and building alternative systems of bilateral trade.

This reconfiguring of the world’s financial system will be fatal to the American empire, as the historian Alfred McCoy and the economist Michael Hudson have long pointed out. It will trigger an economic death spiral, including high inflation, which will necessitate a massive military contraction overseas and plunge the United States into a prolonged depression. Trump, rather than make America great again, turned out (unwittingly) to be the empire’s most aggressive gravedigger.

The Trump administration capriciously sabotaged the global institutions, including NATO, the European Union, the United Nations, the World Bank and the IMF, which provide cover and lend legitimacy to American imperialism and global economic hegemony. The American empire, as McCoy points out, was always a hybrid of past empires. It developed, he writes, “a distinctive form of global governance that incorporated aspects of antecedent empires, ancient and modern. This unique U.S. imperium was Athenian in its ability to forge coalitions among allies; Roman in its reliance on legions that occupied military bases across most of the known world; and British in its aspiration to merge culture, commerce, and alliances into a comprehensive system that covered the globe.”

When George W. Bush unilaterally invaded Iraq, with his doctrine of preemptive war defying international law and dismissing protests from traditional allies, he began the rupture. Trump deepened the fissures. The Trump administration’s withdrawal from the 2015 Iranian nuclear agreement, although Iran had abided by the agreement, and demand that European nations also withdraw or endure U.S. sanctions saw European nations defect and establish an alternative monetary exchange system that excludes the United States. Iran no longer accepts the dollar for oil on international markets and replaced it with the euro, not a small factor in Washington’s deep animus to Teheran. Turkey also is abandoning the dollar.

The U.S. demand Germany and other European states halt the importation of Russian gas likewise saw the Europeans ignore Washington. China and Russia, traditionally antagonistic, are now working in tandem to free themselves from the dollar. Moscow transferred $100 billion of its reserves into Chinese yuan, Japanese yen, and euros. And, as ominously, foreign governments since 2014 are no longer storing their gold reserves in the United States or, as with Germany, are removing them from the Federal Reserve. Germany repatriated its 300 tons of gold ingots. The Netherlands repatriated its 100 tons.

The U.S. intervention in Venezuela, the potential trade war with China, the withdrawal from international climate accords, leaving the Intermediate-Range Nuclear Forces (INF) Treaty, the paralysis in Washington and disruptive government shutdown, asawell as increased hostilities with Iran bode ill for America. American foreign and financial policy is hostage to the bizarre whims of stunted ideologues such as Mike Pompeo, John Bolton, and Elliott Abrams.

This ensures more global chaos as well as increased efforts by nations around the globe to free themselves from the economic stranglehold the United States effectively set in place following World War II. It is only a question of when not if the dollar will be sidelined. That it was Trump, along with his fellow ideologues of the extreme right, who destroyed the international structures put in place by global capitalists, rather than the socialists these capitalists invested tremendous resources to crush, is grimly ironic.

The historian Ronald Robinson argued British imperial rule died “when colonial rulers had run out of indigenous collaborators.” The result, he noted, was the “inversion of collaboration into noncooperation largely determined the timing of the decolonization.” This process of alienating traditional U.S. allies and collaborators will have the same effect. As McCoy points out, “all modern empires have relied on dependable surrogates to translate their global power into local control—and for most of them, the moment when those elites began to stir, talk back, and assert their own agendas was also the moment when you knew imperial collapse was in the cards.”

The dollar, because of astronomical government debt now at $21 trillion, a debt augmented by Trump’s tax cuts costing the U.S. Treasury $1.5 trillion over the next decade, is becoming less and less trustworthy. The debt-to-GDP ratio is now more than 100 percent, a flashing red light for economists. Our massive trade deficit depends on selling treasury bonds abroad. Once those bonds decline in value and are no longer considered a stable investment, the dollar will suffer a huge devaluation.

There are signs this process is underway.  Central-bank reserves hold fewer dollars than they did in 2004. There are fewer SWIFT payments–the exchange for interbank fund transfers–in dollars than in 2015. Half of international trade is invoiced in dollars, although the U.S. share of international trade is only 10 percent.

“Ultimately, we will have reserve currencies other than the U.S. dollar,” the Bank of England Gov. Mark Carney announced last month.

Sixty-one percent of foreign currency reserves are in dollars. As these dollar currency reserves are replaced by other currencies, the retreat from the dollar will accelerate. The recklessness of America’s financial policies will only exacerbate the crisis. “If unlimited borrowing, financed by printing money, were a path to prosperity,” Irwin M. Stelzer of the Hudson Institute said recently, “then Venezuela and Zimbabwe would be top of the growth tables.”

McCoy explains what a world financial order untethered from the dollar would look like:

For the majority of Americans, the 2020s will likely be remembered as a demoralizing decade of rising prices, stagnant wages, and fading international competitiveness. After years of swelling deficits fed by incessant warfare in distant lands, in 2030, the U.S. dollar eventually loses its special status as the world’s dominant reserve currency.

Suddenly, there are punitive price increases for American imports ranging from clothing to computers. And the costs for all overseas activity surges as well, making travel for both tourists and troops prohibitive. Unable to pay for swelling deficits by selling now-devalued Treasury notes abroad, Washington is finally forced to slash its bloated military budget. Under pressure at home and abroad, its forces begin to pull back from hundreds of overseas bases to a continental perimeter. Such a desperate move, however, comes too late.

Faced with a fading superpower incapable of paying its bills, China, India, Iran, Russia, and other powers provocatively challenge U.S. dominion over the oceans, space, and cyberspace.

The collapse of the dollar will mean, McCoy writes, “soaring prices, ever-rising unemployment, and a continuing decline in real wages throughout the 2020s, domestic divisions widen into violent clashes and divisive debates, often over symbolic, insubstantial issues.”

The deep disillusionment and widespread rage will give an opening to Trump, or a Trump-like demagogue, to lash out, perhaps by inciting violence, against scapegoats at home and abroad.  But by then the U.S. empire will be so diminished, its threats will be, at least to those outside its borders, largely meaningless.

It is impossible to predict when this flight from the dollar will take place. By the second half of the 19th century, the U.S. economy had overtaken Britain, but it was not until the middle of the 20th century that the dollar replaced the pound sterling to become the dominant currency in international trade. The pound sterling’s share of currency reserves among international central banks fell from around 60 percent in the early 1950s to less than 5 percent by the 1970s. Its value declined from more than 4 dollars per pound at the end of WWII to near-parity with the dollar.  The British economy went into a tailspin. And that economic jolt marked for the British, as it will for us, the end of an empire.

Trump’s Brilliant Strategy to Dismember U.S. Dollar Hegemony

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3 thoughts on “Goodbye to the Dollar

  1. As an American, I am also wishing to see alternative currencies (euro, yen, and yuan) being used instead of the dollar. Aside from the continued warfare and destruction waged with the US dollar, there’s also the stupidities within the American monetary system that’s likely to baffle certain foreigners and are close to nonexistent in the euro. I doubt you might be worried of these as much as I am, but here goes:

    1. Unlike notes for euro, ruble and yuan, where each denomination has its own color (think Monopoly money) and sometimes size, US dollar bills come in only one color and size for all denominations, making it difficult for sight-impaired users to differentiate between each denomination without resorting to hacks. It took until 2004 for the Federal Bureau to print color-coded dollar bills, but the colors are still weak and flimsy. It becomes noticeable when other countries have been printing notes in different colors and sizes for decades, if not centuries, before 2004.

    2. Unlike its Canadian, Australian and European counterparts, the US $1 bill is still being printed. This prevents the US $1 coin from seeing wider use, especially with rising inflation. The three same regions also went as far as to introduce a 2-dollar/euro coin too. Could this be a ploy to get unsuspecting Americans to keep using the Federal Reserve notes? I smell a rat.

    3. The US continues to mint the penny despite it costing 1.6¢ to mint each one. Canada has discontinued theirs in 2012 and Australia in 1991 for the same reasons. Same with a few Eurozone members such as Finland, Ireland and the Netherlands. The lowest-value circulating coin commonly found in China is one jiao, or one tenth of a yuan.
    Let’s not forget that there have been stories of zinc toxicity from post-1982 pennies thanks to their copper-plated zinc composition. I do not know of any other country that uses a zinc fourrée in its coins, but for what it’s worth, Canada and the Eurozone have minted their 1-cent pieces in copper-plated steel, and Japan in pure aluminum.

    4. The coins themselves aren’t minted with numerals; how is Johnny Foreigner supposed to know that a “dime” means “tenth” if the US dollar is being used globally? Never mind that multilingual entitles like Russia, Canada, Switzerland, Singapore and the Eurozone cater to multiple languages; monolingual societies like Australia and Japan use numerals too.

    5. The dollar sign ($) is shaped like an S and not a D or a P (non-Philippine peso), and its origins are not as clear/obvious as the symbols for the pound (£ for “libra”), euro (€) and yen/yuan (¥).

    6. If the dime (10¢) being smaller and lighter than the penny isn’t stupid enough already, there’s also how the half-dollar (50¢) is no longer minted, leaving users bereft of a coin that could bridge the gap between the quarter (25¢) and the dollar, especially when it costs eight cents to mint a nickel (5¢).

    I doubt I’m the only one who finds these “quirks” as mere annoyances, but the move to another currency should at the very least iron these issues out.

    Side note: Speaking of the euro, I could be wrong, but I don’t see it likely that it might effectively replace the dollar, especially if the EU’s kowtowing to NATO and the crises in the Southern European states are anything to go by.
    On the other hand, Saddam Hussein did get executed after selling oil in euros instead of dollars, and, as mentioned, Russia has transferred $100G (Giga = 10^9) of its reserves into euros alongside yuan and yen, so maybe the euro isn’t completely out of the question…

    Liked by 1 person

    1. Are you a coin collector or have some interests in money itself?

      Haven’t thought about many of the issues you’ve brought up.

      I do have a friend named Joe. Joe is blind and has been since birth. So money is an issue. Joe says he used to have a beautiful wife who did the money things for the couple. But now, he’s making it alone. That’s right. Blind guy. Lives in an apartment. On his own.

      Joe taught me the way you tell a dime from a penny is dimes have ridges round the edges whereas pennies are smooth. Same thing with nickels and quarters. They’re about the same size, but quarters have ridges and nickles don’t. The more expensive one has ridges round its circumference in both cases; that’s how Joe distinguishes them.

      Now, paper money is a different problem. He hasn’t got that figured out. Must trust someone at some point – say the cashier at McDonald’s – to hand him his paper money and correctly identify which bill is which denomination for him, and so on. He has ways of folding the money… triangles, squares, that sort of thing – to help him keep up with which ones are ones, which are fives, tens, twenties, and so on. But they all feel the same, being made of the same hemp paper or something.

      So therein lies the rub, says the blind man named “Joe.” True story.

      How about that one? Is there a way to solve the problem of the tactile?

      I’ve no doubt the mint or whomever keeps the money green to show its stability. Changing the designs or colors makes some folks wonder questions such as “is it real?” and “is it really worth something?” and no one wants that to happen, do they?

      The monetary system requires belief. The days when we could go trade our paper money for its equivalent in gold down at Fort Knox or somewhere are gone, aren’t they?

      I suppose you can buy gold coins with your paper money to solve the problem, right? First World problems… ha ha!


      1. To answer your first question, while I do have a collection of foreign coins, I’m not a numismatist or a collector. Two of the coins in my collection are a 50 Euro cent coin and a 50 yen coin. What sparked my interest is the fact that these two denominations are commonly used in their respective countries, unlike the American half-dollar which was discontinued from general circulation in 2002 and is now demoted to collectible status. It makes me wonder how the US Mint could be stupid enough to stop making such a necessary denomination, let alone fail to promote its usage.

        To answer your second question, yes, folding banknotes can solve the problem of the tactile. In fact, I was already aware of that trick. Sorry if I didn’t make this clear.
        What I had in mind were not blind folks like Joe, but rather folks who suffer from blurry vision and can’t read well without glasses, but can differentiate between colors. Then again, they can just put their glasses on or, as mentioned, fold their denominations differently.

        If most Americans are not bothered as much as I am with the present system, well, that’s fine by me. All I’m trying to say is why I personally will be stating “good riddance” as more countries ditch the dollar in favor of the euro, yuan, yen, etc.


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