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U.S. Dollar Benefits and Challenges for the Rest of the World
Thanks to the issue of US dollars, you don't have to pay interest to all those foreign holders of dollar notes, as they would if they held American bonds instead. This alone, for 2023, saves the United States about $48 billion per year, or 0.2% of GDP. At this time, citizens outside the United States store about $1 trillion in dollar banknotes, as if they were gold bars.
The greater benefit is that the US can borrow from the world at lower interest rates than when using a less significant currency, as everyone wants to hold dollar assets.
One French finance minister once called America an "exorbitant privilege." Unlike most other countries, the United States can endlessly increase the trade deficit, since foreigners will always be happy to keep their dollars, thereby keeping the dollar expensive and American imports cheap. In other words, the United States may not live within its means, which it does (the US national debt is constantly growing).
Equally important is that the dominance of the dollar isolates the United States from global economic and geopolitical shocks, including those caused by America. Since the dollar is considered a "quiet harbor," then when any problems arise - from wars to financial crises - the world rushes into it, and not out of it.
However, when assessing American hegemony in the international system, it is important whether the dominance of the dollar is good or bad for the world.
The disadvantages include the fact that the US Federal Reserve sets not only its interest rates, but, in fact, the rates of other economies. When the US tightens interest rates, borrowing becomes more expensive for Asians and Latinos, whether they like it or not, and vice versa. And with many countries billing for their dollar trade, strengthening the dollar willy-nilly makes their exports less competitive. As the US treasury secretary once remarked, speaking to a group of European finance ministers, "the dollar is our currency, but that's your problem."
On a positive note, the dollar's near-universal recognition also reduces transaction costs in international trade and investment. In fact, the dollar is a world medium of exchange, a unit of account and a store of value. In this sense, it is for world finance and trade what money is for barter.
When the dollar loses its status, it will have to be replaced by some other currency, and it is not yet clear which one.
Thus, US hegemony and dollar dominance are two aspects of the same phenomenon, and one cannot say which of them is chicken and which is egg.
The whole world is looking forward to de-dollarization in the hope that the United States itself will not be able to manage its own affairs, including money: it will be unable to accept budgets and raise taxes, and will begin to experience massive defaults and politicization. They have already taken the first step to use the dollar as a weapon against other countries.
2024
The end of the agreement with Saudi Arabia on its oil trade only for dollars
On June 9, 2024, the treaty signed between the United States and Saudi Arabia 50 years ago expired and obliged the kingdom to trade oil only for American currency in exchange for receiving assistance from the United States, primarily military.
The fact that the agreement will not be extended became known back in 2023, when Saudi Arabia signed an agreement with China on future oil supplies for the yuan.
Currencies of other countries fell sharply against the dollar in 10 years
2023
Dollar's share of trade hits record as euro deals collapse
The role of the dollar in international payments is greater than ever, according to transaction data collected by Swift. The use of the dollar in global payments in July 2023 reached a record level.
In July, the share of transactions related to the dollar reached a record 46%. In terms of the number of transactions, the dollar leads, followed by the euro, sterling, yen and yuan. The share of the euro fell to a record low, the share of the yuan exceeded 3%.
"The American dollar is the largest financial terrorist in the world" - Indian billionaire
The head of one of India's largest private banks, Kotak Mahindra Bank, Uday Kotak, said in May 2023 that the US dollar is "the largest financial terrorist in the world."
"All of our money is in nostro accounts (used to do currency deals in the global financial market and to provide bank services related to foreign currency settlements) and someone in the US can say: you can't withdraw it from tomorrow morning. And you're stuck, "the banker explained. Uday Kotak ranks 124th in the Forbes ranking with a fortune of $14.5 billion.
The share of the dollar in the reserves of countries decreased to 58%
According to Stephen Jen, CEO of asset valuer Eurizon Capital SGR, the dollar is losing its status as a global reserve currency at a "staggering rate."
The dollar for March 2023 is 58% of the global reserves of countries, in 2001 the figure was 73%. And the drop in share will continue.
The dominance of the dollar is weakening as its importance in global trade decreases, and Western sanctions against Russia open up new risks to currency ownership , said billionaire hedge fund founder Bridgewater Associates, billionaire investor Ray Dalio, in April 2023.
The world Central Bank does not want to keep the dollar. "The dollar is a debt. In other words, when someone holds a dollar - a central bank - they hold a debt asset. "
One reason is that China's share of global trade is rising and the U.S. share is falling. With China's use of the yuan in global trade on the rise, the need for a dollar may weaken in the future.
Another reason is that Western sanctions against Russia have created new risks. These sanctions "increased the risk that these debt assets could be frozen the way they were frozen for Russia."
The administration of US President Biden imposed sanctions, froze hundreds of billions of dollars from Russia's foreign reserves and, in agreement with Western allies, practically ousted the country from the global banking system. For most countries in the world, it was a stark reminder of their own reliance on the dollar, regardless of what they think of the war.
For many world leaders, the motives for taking these measures are strikingly similar. The US dollar is becoming a weapon used to advance America's foreign policy priorities and punish those who oppose them, they said.
While the campaign of financial sanctions against Russia is the latest and most high-profile example, in recent years both Democratic and Republican administrations have imposed sanctions on countries such as Libya, Syria, Iran and Venezuela.
At the same time, the vast majority of US allies from advanced economies, which account for more than 50% of global gross domestic product, do not show much desire to abandon the dollar.
In fact, the dollar rose against most of its major peers after the US stepped up sanctions against Russia in 2022, a sign that any decline in its global status is likely to be a long and slow process.
Yuan use in cross-border deals in China outpaces dollar use for the first time
The share of the yuan in cross-border payments and receipts China in rose to a record high of 48% at the end of March 2023 from almost zero in 2010. dollar The share fell to 47% from 83% over the same period, the data showed.
2022
The dollar remains the main currency in the reserves of countries, but its share falls
The share of the dollar in global reserves in 2022 decreased 10 times faster than the average over the past 20 years.
Russian Finance Minister considers dollar and euro "toxic candy wrappers"
"The American and European currency is toxic to us. What do we do with her? Why is it needed, this currency? That is, we sell our own wealth - gas, receiving candy wrappers, toxic candy wrappers. Why are they needed?, " - said the Minister of Finance of the Russian Federation Anton Siluanov in May 2022
The Ministry of Finance of Russia proposed to use cryptocurrency for payment under foreign trade contracts.
$2.25 trillion in circulation
According to the Federal Reserve for April 2022, $2.25 trillion is in circulation USA , up from $1.80 trillion in early 2020 and just over $800 billion in 2007.
Dollar share in central bank reserves falls below 60%
Credit Suisse: Blocking Russia's reserves will lead to the movement of the Central Bank of the countries "from" the dollar
Swiss bank Credit Suisse in March 2022:
"The loss by Russia of part of its foreign exchange reserves (after the start of a special operation in Ukraine) is a signal to other countries that they will not be able to use their money in the event of a conflict. Reserve asset managers will understand that it is now less reasonable to hold assets in US dollars . Central banks will begin to move "from" the dollar, and this could change the global monetary order. "
2021
The share of the US dollar in global foreign exchange reserves fell to a record low 58.8%
As of December 31, 2021, the share of the US dollar in global foreign exchange reserves decreased to 58.8%, which is a new record low.
The share of the euro approached the share of the dollar in world calculations
2020
The share of Russian exports in dollars fell below 50% in the IV quarter
The share of Russian exports in dollars fell below 50% in the IV quarter of 2020. Amid sanctions and the constant threat of new restrictions, Russia is forced to look for ways to isolate its economy from US interference.
According to the Central Bank, the largest reduction in the use of the dollar was due to trade between Russia and China, more than 3/4 of which is now conducted in euros.
The share of the European currency in total exports jumped by more than 10 percentage points to 36%.
The Central Bank in its international reserves also reduced investments in US Treasuries, while increasing the share of gold reserves and the euro.
Morgan Stanley: Bitcoin will oust the dollar
In early December 2020, the chief strategist and head of the emerging markets group Morgan Stanley Investment Management, Ruchir Sharma, was optimistic about the long-term prospects of bitcoin, arguing that the token may still be able to "replace the dollar as a means of exchange." Read more here.
Euro outperforms dollar on cross-border transfers for first time since 2013
In October 2020, the euro became the most popular currency for cross-border transfers, overtaking the US dollar for the first time since February 2013. Read more here.
China cuts dollar use in international trade
The share of payments and other transactions nominated in the yuan that the banks of the Middle Kingdom performed for their clients reached 37% in June 2020, while a year ago this figure was only 19%. The share of similar dollar payments decreased during this time from 70% to 56%, follows from the data of the State Administration of Foreign Exchange Control of the PRC (schedule).
Such a drop in the popularity of the dollar, on the one hand, is due to the desire of Chinese companies to protect themselves from currency volatility, and on the other, they are deliberately pushed to this by the country's authorities.
The start of consultations on the launch of the digital dollar in the United States
At the end of March 2020, the Digital Dollar Foundation announced the creation of a 22-member advisory group that will help develop the framework for the creation of the digital currency of the US Central Bank. The fund intends to explore the potential application of the digital dollar. Read more here.
The purchasing power of the dollar has decreased 26 times since 1910
Nearly 20% of all dollars in circulation were issued in 2020
M2 this is a money supply, or a cash offer, - a set of cash in circulation and non-cash funds in accounts held by individuals and legal entities and the state.
2019
Putin on the dollar: the United States is sawing the bitch on which they are sitting. Soon they will crash
On October 1, 2019, Russian President Vladimir Putin noted that the United States is trying to use the dollar as a political weapon.
 | "I believe that this is another major political mistake, because the dollar enjoyed very great confidence around the world. It was almost the only universal global currency. For some reason, the United States began to use dollar settlements as a tool for political struggle, to impose restrictions on the use of the dollar. With their own hands, they began to saw the bitch on which they are sitting. Soon they will crash, "the head of state said at a meeting of the Russian Energy Week (REN) forum[1]. The[1] US[1]. |  |
The President stressed that, according to international world organizations, the gold and foreign exchange reserves of the countries of the world are decreasing in dollar terms.
| | "The dollar is shrinking as a reserve currency in many states of the world, including the US ally countries. And the calculations of world trade are falling: it was more than 50 percent, now 45. The fall is happening, "the president added. | |
According to the head of state, the US sanctions policy against countries aimed at limiting settlements in dollars "undermines confidence in the dollar, is it really not clear that the dollar is being destroyed with their own hands."
Putin also noted that Russia has never set itself the task of abandoning settlements in dollars, but US policy forces this. He clarified that the countries of the Eurasian Economic Union have practically switched to settlements in rubles, now 72% of settlements take place in the national Russian currency.
Putin expressed the hope that "a rethinking of this situation should definitely come to the ruling circles of the United States."
The share of the dollar in the foreign exchange reserves of countries - 61.8%
How the purchasing power of the dollar has collapsed over the past century
How much can you buy goods for $100 in 1913:
- 1913: $100
- 1923: $57.89
- 1933: $76.15
- 1943: $57.23
- 1953: $37.08
- 1963: $32.35
- 1973: $22.30
- 1983: $9.94
- 1993: $6.85
- 2003: $5.38
- 2013: $4.25
- 2019: $3.87
Volume of dollars in circulation - 1.7 trillion
The gold supply as of August 2019 is $8.7 trillion, the supply of $1.7 USA trillion. The volume rubles in circulation is $150 billion.
2018: Reducing the dollar's share of countries' reserves to a 20-year low
2017: Waning U.S. military power: The beginning of the end of the dollar
Problems for the United States began in the late 1990s. during the expansion of the American empire after the death of the Soviet Union. The stated geopolitical goal is to achieve global hegemony. With unlimited options and an ideology based on U.S. exceptionalism, the effort seemed to be within reach of politicians at the Pentagon and on Wall Street. A key element for achieving global hegemony was to prevent the ability of China, Russia and Iran to create a Eurasian area of integration.
Over the years and for various reasons, the three countries have continued to trade heavily in US dollars, bowing to the economic dictates of a fraudulent financial system created for the benefit of the US. China needed to continue playing the role of a global factory, always accepting dollar payments and buying hundreds of billions of U.S. Treasury bills.
With President Vladimir Putin, Russia began to de-dollarize almost immediately, paying off external debts in dollars in an attempt to reduce this economic pressure. Russia today is one of the countries in the world with the lowest amount of public and private debt, expressed in dollars, and the recent ban on the use of US dollars in Russian seaports is the latest example. For Iran, sanctions have always been the problem, creating big incentives to circumvent the dollar and find alternative ways to pay.
The decisive factor that changed the perception of countries such as China and Russia was the financial crisis of 2008, as well as the growing US aggression since the events in Yugoslavia in 1999. The Iraq War, along with other factors, prevented Saddam from starting trading oil in euros, which threatened the financial hegemony of the dollar in the Middle East.
The war and America's continued presence in Afghanistan underscored Washington's intentions to continue to surround China, Russia and Iran to prevent any Eurasian integration. Naturally, the more the dollar was used in the world, the more Washington had the right to spend on military force. For the United States, paying $6 trillion in bills (the cost of the wars in Iraq and Afghanistan) was not an easy task, and this is an unprecedented advantage compared to countries such as China and Russia, whose military spending in comparison is a fifth and tenth, respectively.
Repeated unsuccessful attempts to conquer, undermine and control countries such as Afghanistan, Georgia, Iraq, Libya, Syria Donbass, North Korea, Egypt, Tunisia, Yemen and Venezuela have had a significant impact on the perception of US military power. Washington Militarily, it faced numerous tactical and strategic defeats: Russia returned Crimea without firing a shot, the West did not react in any way.
In Donbass, resistance caused huge losses to the NATO-backed Ukrainian army. In North Africa, Egypt came under the control of the army after trying to turn the country into a state under the control of the Muslim Brotherhood. Post-annihilation Libya was divided into three regions, and Egypt appears to be friendly towards Moscow and Beijing. In the Middle East, Syria, Turkey, Iran and Iraq are increasingly cooperating to stabilize regional conflicts. Where necessary, they are backed by Russian military might and Chinese economic might. And, of course, in 2017, the DPRK continues to ignore US military threats, having a deterrent in the form of nuclear potential, in fact making these US threats invalid.
Color revolutions, wars, economic terrorism, and attempts to destabilize these countries have had a devastating effect on Washington's military power and effectiveness.
Venezuela abandons the dollar in oil settlements. According to the business press, the state-owned company ordered its clients to open accounts in any other currencies, just not in the US. Until a few decades ago, any idea of moving away from petrodollar was seen as a direct threat to American world hegemony, requiring a military response. In 2017, given the decline in confidence in the United States as a result of the outbreak of war against small countries (leaving aside countries such as Russia, China and Iran, which have military capabilities that the United States has not seen for more than seventy years), a general decline in the dollar system began in many countries.
In recent years, it has become clear to many anti-Washington countries that the only way to adequately contain the effects of the fall of the American empire is to phase out the dollar. This serves to limit Washington's ability for military spending by creating the necessary alternative tools in the financial and economic spheres that will eliminate Washington's dominance. This is important in the Russian-Sino-Iranian strategy of unification of Eurasia and, thus, makes the United States irrelevant.
Dedollarization for Beijing, Moscow and Tehran has become a strategic priority. Eliminating the unrestricted influence of the Fed and the American economy means limiting the expansion of the US imperialists and reducing global destabilization. Without the usual US military force to strengthen and impose the use of the US dollar, China, Russia and Iran paved the way for important shifts in the world order.
The US practically shot itself in the foot, speeding up the process by removing Iran from SWIFT (paving the way for the Chinese alternative, CIPS) and applying sanctions in countries such as Russia, Iran and Venezuela. It also accelerated gold mining and acquisition in China and Russia, in direct contrast to the situation in the United States and rumors that the Fed no longer possesses gold. It is no secret that Beijing and Moscow are striving to build up gold reserves if and when the dollar collapses.
Beijing has begun putting heavy pressure on Riyadh to accept payments for renminbi oil instead of dollars. For Riyadh, this is almost an existential question. Riyadh is in a tricky situation of maintaining a US dollar pegged to oil, although its main ally, the US, has been implementing a controversial strategy in the Middle East, as seen in the JCPOA agreement. Iran, the main regional enemy of Saudi Arabia, was able to lift sanctions (especially from European countries).
In addition, Iran was able to achieve a historic victory with its allies in Syria, occupying an outstanding role in the region. Riyadh is obliged to obey the US, an ally that does not care about its fate in the region (Iran is increasingly influential in Iraq, Syria and Lebanon) and even competes in the oil market. To make matters worse in Washington, China has become Riyadh's biggest customer, and given arrangements with Nigeria and Russia, Beijing could quietly stop buying oil from Saudi Arabia if Riyadh continues to push for dollar-only payments. That would badly hurt petrodollar, the vicious system that hurts China and Russia the most.
There are a growing number of countries that are beginning to see the benefits of a decentralized system, as opposed to a US dollar system.
Iran and India, as well as Iran and Russia, often trade hydrocarbons in exchange for commodities, thereby bypassing American sanctions.
In addition, China's economic strength allowed it to provide a loan of 10 billion euros for Iran, allowing it to bypass recent sanctions.
Venezuela (with the largest oil reserves in the world) in 2017 began a historic movement towards a complete rejection of the sale of oil in dollars and announced that it would begin to receive money in currencies of a basket of currencies without a dollar.
Beijing will buy gas and oil from Russia by paying yuan, and Moscow will be able to immediately convert the yuan into gold on the Shanghai International Energy Exchange.
This gas-yuan-gold mechanism speaks of revolutionary economic changes thanks to the gradual abandonment of the dollar in trade[2].
1980s-2010s: How the dollar is destroying the planet
The reason the U.S. was able to fuel global demand for dollars is because of the need for other countries to own dollars in order to be able to buy oil and other commodities. For example, if a Bolivian company exports bananas to Norway, the payment method requires the use of dollars. Therefore, Norway must own American currency to pay for and receive purchased goods. Similarly, Bolivia's dollars will be used to buy other necessities, such as oil from Venezuela. This may seem improbable, but virtually all countries until a few years ago used US dollars to trade among themselves, even if they were countries opposed to the US and its imperialist policies.
This continued use of the dollar has had some devastating impact on the planet. Above all, the heavy use of American currency combined with Nixon's decisions created a dollar-based economic standard that soon replaced precious metals such as gold, which had been the standard for the global economy for years.
This led to significant instability and economic systems, which in subsequent years created catastrophic financial policies, for example, in 2000 and 2008.
The main source of economic reliability has switched from gold to dollars. This major shift allowed the US Fed to print dollars with little or no restrictions, well aware that demand for dollars will never stop, especially in the private and public enterprise sectors. This set the course for the global economic system to use financial instruments such as derivatives and other securities instead of real tangible goods such as gold. By doing so for its benefit, the US has created the conditions for a new financial bubble that could bring down the entire global economy when it explodes.
The United States found itself in an enviable position, being able to print sheets of paper without gold support, and then exchange them for real goods. This economic agreement allowed Washington to achieve an unprecedented strategic advantage over its geopolitical opponents (initially the USSR, later Russia and China), namely, to obtain an almost unlimited potential for dollar spending, even when they grow to the astronomical size of the national debt (about $21 trillion for 2017). A destabilizing factor for the global economy is Washington's ability to accumulate huge government debts without worrying about the consequences for international markets. Countries simply needed dollars to trade and were therefore willing to buy them to diversify their financial assets.
The continued use of the dollar as a means of payment for almost everything, coupled with the Fed's near-endless ability to print money and Treasuries to issue bonds, has led to the dollar becoming a major safe haven for organizations, countries and individuals legitimizing this vicious financial system that has been affecting the world for decades.
1981: How the dollar made important to the global economy
The reason why the dollar plays such an important role in the global economy is due to the following three main factors:
- petrodollar,
- dollar as the world reserve currency and
- by the decision of US President Nixon in 1971, no longer convert the dollar into gold.
Most of the problems for the rest of the world started with a combination of these three factors.
1973: U.S. agreement with OPEC and Saudi Arabia to sell oil in dollars
The largest geo-economic changes in the last fifty years occurred in 1973 after an agreement between OPEC, Saudi Arabia and the United States to sell oil exclusively in dollars.
In particular, Nixon agreed with Saudi King Faisal to accept only dollars as a fee for oil and related investments, transferring billions of extra dollars to US Treasury bills and other financial resources operating on the basis of the dollar. In return, Saudi Arabia and other OPEC countries found themselves under US military protection.
1981: The dollar dominates the IMF's basket of foreign exchange reserves
The second factor is perhaps even more important for the world economy: the dollar becomes the world's reserve currency and has maintained a dominant role in the IMF's basket of international foreign exchange reserves since 1981. associated, apparently with trading in petrodollars, almost always retained its share of more than 40% of the SDR basket, while the euro has maintained a stable share of 29-37% since 2001 to understand economic changes in the process, suffice it to note that the yuan for 2017 is finally included in the SDR with an initial share of 10%, which is higher than the yen level (8.3%) and sterling (8.09%), but significantly less than the dollar (41%) and the euro (31%). Slowly but surely, the yuan is becoming an increasingly used currency in global trade.
1955: The dollar displaces sterling in international reserves. Its share rose to 52%
By 1955, in just ten years, the share of sterling in the reserves of the world's countries fell from 80% to 38% (and over the next 20 years another ten times), and the share of the US dollar rose to 52%.
1945:80% of the international reserves of all countries of the world in British pounds - and only 16% in dollars
In 1945, 80% of the international reserves of all countries of the world lay in British pounds - and only 16% in dollars.
1944: Bretton Woods: US seeks use of dollar as global currency
British John Maynard Keynes, often described as the most influential economist of the 20th century, sought to create a monetary system after World War II that would limit US influence. America emerged from the conflict as the planet's undeniable financial power, and Britain's role was greatly weakened.
Keynes envisioned an International Clearing Union in which each central bank member would open its own account, Carter writes in "The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes." This ICU could at its discretion issue a new world currency, as well as punish or reward countries with permanent trade surplus or negative balances.
Keynes didn't get his way, though. The lenders that emerged after the decisive meeting in Bretton Woods (New Hampshire) in 1944 - the International Monetary Fund and the World Bank - were heavily influenced by the US.
As a result, Keynes had to come to terms with the fact that the basis of international calculations will be the dollar and the institution of salvation, funded mainly by the United States. "The partnership is over, and with it Britain's time as a great power," Carter wrote.
At the conclave that ratified the deal, Keynes, married to a Russian ballerina, referenced "Sleeping Beauty," Tchaikovsky's ballet. He hoped the good fairies would guide the guardians of this new order, says Zachary D. Carter's biography[3].
The dollar has gained a foothold as a driving force in the foreign exchange market.
1862: First Dollar Issue
See also
Notes
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