If you think U.S. imperial decline has been accelerating lately, wait for when the dollar crashes. The country’s economic intelligentsia has been trying to dismiss this prospect, claiming that “there is no alternative” to the dollar as a hegemonic world currency. But as our economic and geopolitical crises lead us ever closer to such a shift, these arguments for the dollar’s continued strength feel more and more like magical thinking.
Despite the belief among these economists that the dollar will remain strong because it’s been resilient during the pandemic so far, factors are converging for the dollar to not just weaken as it’s been doing in recent weeks, but to lose its special status as the world’s reserve currency. The only reason why the dollar has remained on top throughout this year’s economic crisis is essentially that it still benefits from the hegemonic position that it attained during the 20th century; many countries still see the dollar as a financial safe haven. Relying upon this established trust in the dollar, the Federal Reserve has worked with other central banks around the world to assure them that they’ll still have enough liquidity to support their financial systems.
Yet the Fed’s maneuvers haven’t been able to stop the value of the dollar from continuing to fall. A profound loss of confidence in the dollar has occurred, sparked by the recent developments that Bloomberg’s Stephen Roach has described as undermining global trust in America:
Protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances, gross mismanagement of COVID-19 response, together with wrenching social turmoil not seen since the late 1960s, are all painfully visible manifestations of America’s sharply diminished global leadership.
The international fallout from January’s illegal assassination of General Soleimani, Washington’s genocidal sanctions on Iran and Venezuela, and the escalating U.S. belligerence towards China have also helped isolate Washington and its closest allies from the rest of the world. The outcome that this is leading towards is one which has been anticipated years before the pandemic: the dollar loses its status as the global reserve currency.
Numerous events have made such a scenario seem not just plausible, but inevitable. Last year China and Japan began using their own currencies in bilateral trade; Brazil, Russia, India, China and South Africa have begun promoting their own currencies when trading with each other rather than the dollar; Saudi Arabia is likely to abandon the petrodollar in its dealings with China at some point; use of Chinese currency is growing in Africa; India is now using gold to buy oil from Iran; the United Nations and the International Monetary Fund are both pushing for a new reserve currency; this May Brazil began accepting the Chinese Yuan for iron ore; and most of the rest of the world hates the U.S. for all of its imperialist belligerence.
Dedollarization is a process that’s been made inevitable by the rise of America’s rival superpowers, and by the increasing economic isolationism and diplomatic sabotage that the U.S. has displayed in reaction to its decline. It’s now weakening the dollar, even at a time when the dollar has the advantage of being seen as a safe financial bet during an economic crisis. And when the current trends develop long enough, the dollar’s hegemony will be lost.
This scenario is still some way off. U.S. abilities to project its financial power will first have to be more seriously compromised, perhaps by a successful attempt by the UN or the IMF to replace the dollar. And Russia and China will have to resolve some issues before they can financially stand as a unit against the U.S. But Washington’s cold war belligerence has already pushed Russia and China closer together militarily, so there’s no reason not to think their alliance will continue to improve. And if the U.S.-China trade war deepens, China will be prepared to carry out its stated “nuclear option” of rejecting all dollar transactions. This would quickly put an end to the U.S.-dominated financial order.
This last possibility is more likely than it might sound. Zoltan Ban’s analysis in Seeking Alpha concludes that “The final outcome of the clash may not be known, but it is naive in my view to believe that China will not hit the US at the core of its interests, including America’s arguably most important asset, namely its global currency status, and it may happen sooner than some might expect.”
However and whenever the great dollar crash happens, it’s hard to believe the dollar has more than a decade left as the king currency. Looking at expert estimates of when the U.S. will collapse as a global empire, 2030 is the roughly agreed upon date for when at least America’s global hegemony will be over. Events keep vindicating this view of where the country is going: a loss of its former hegemony, both in terms of its financial power and in terms of its military strength.
The definitive end of U.S. military dominance will come after the definitive end of its financial dominance. When the dollar collapses, the U.S. will experience high inflation, high interest rates on its mortgages and cars, great increases in the cost of food and other goods, and what financial analyst Lorimer Wilson describes as:
A much harder time financing its debt. Right now, there is a huge demand for U.S. dollars and for U.S. government debt since countries around the world have to keep huge reserves of U.S. currency lying around for the sake of international trade but what if… the appetite for U.S. dollars and U.S. debt dried up dramatically? That is something to think about.
In such a situation, Washington will be forced to massively contract its global military presence. In addition to the internal economic catastrophes that will strain the government’s ability to fund the military, the loss of the dollar’s dominance will mean the loss of America’s ability to control other countries through financial manipulation. Overall, the IMF has been the empire’s main engine for projecting influence, as it’s allowed for Washington to assimilate countries into the dollar’s international monetary circle and has therefore grown the corporatocracy’s reach. Without financial domination over its neo-colonies, Washington will only be able to conquer other countries through the traditional method of military invasion, which will present it with very limited options in the future that the dollar’s collapse will create.
With the fall of the dollar will come an international isolation for the U.S. like it’s never seen before. Its economy will be destroyed at the same time that it will lose its ability to exploit other countries, and to trade with other superpowers to the extent that it has in the past. The contradictions of capitalism and imperialism will come to a head, making the country ripe for a socialist revolution.
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