When the dollar collapses, U.S. imperialism will have to retreat
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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 from 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.
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