The dollar’s status as the world’s reserve currency has enabled the United States to act as a militaristic global hegemon. The coming end of this system is good news, including for the American people.
The intrinsic value of a coin not made of gold or silver, or of a paper banknote, does not exist. It is based entirely on the political and military authority of the power which mints or prints it, and on its perception by others as a trustworthy instrument of exchange. This has been the case for over two millennia.
Historically, all monetary systems have been more political and cultural than strictly, or even primarily, technocratic edifices. Since Rome’s victory in the Punic Wars, empires have used the spread of their currencies to extract value from the periphery and to enrich themselves. For as long as they remained militarily and politically powerful, the financial systems they produced were stable and durable—and superbly profitable for the hegemon.
Sooner or later, however, empires decline and invariably their weakening is accompanied by the debasement and devaluation of their currencies. The Roman denarius went from 100 percent silver in A.D. 60 to under 5 percent two centuries later. In the 11th century, roughly the same happened to the Byzantine solidus, the gold coin which was hitherto universal means of exchange in the Mediterranean world, when it collapsed from 21 carats to under 8 carats in 50 years. The decline of Spain as a great power under Philip II was closely followed by its financial collapse. Fast forward to the modern times: the decline of the pound started between the world wars, and with the disintegration of the British Empire after 1945 it rapidly became terminal.
The phenomenon of the dollar’s dominance after World War II may be different in some ways from previous geopolitical linkages between power and money—the current system is truly global and highly complex—but it does not differ in substance from the general rule. Since 1944 the dollar’s dominance has ensured the United States’ hegemony over the global economy, allowing successive administrations to accumulate enormous deficits and pass the cost to the rest of the world. A fantastic boon.
The beginning of the end of the dollar’s preeminence came with the crisis of 2008. That crisis revealed the breathtaking arrogance of the military-financial imperium centered in Washington. It accelerated the process—already nascent at the time—of China’s acceptance that its continued compliance with the Breton Woods system was not a viable long-term option for the Middle Kingdom. Exercising the art of understatement, then-governor of the Chinese Central Bank Zhou Xiaochuan declared in 2009 that dollar’s status as the global reserve currency “may not be the right choice for the global economy, though it is a good option for the U.S. economy.” The dollar came to be seen, in Beijing and elsewhere across what is now known as the “Global South,” as a capricious creation of the “Benevolent Global Hegemon.”
During the ensuing eight years of Obama’s presidency, it seemed the United States might be able to stabilize the system and reassert America’s role as the sole power simultaneously commanding full-spectrum global military dominance and institutional certainty in all matters financial. Far from heralding the dollar’s demise, the crisis of 2008 hurt U.S. rivals much more than it hurt America itself. As for the culprits on Wall Street, they were protected from the consequences of their actions by the political powers-that-be.
Because of the crisis, the dollar-dominant status quo became even more firmly entrenched than it had been before. The Obama administration was able to pass on the huge cost of recovery to the European Union (which did not carry any political cost for the U.S.) and—more significantly—to the “emerging” economies. It was an impressive feat of financial jiujitsu in the short term. It turned out to be a costly strategic miscalculation in the long run.
There was no coordinated resistance from the Global South at first, but already towards the end of Obama’s first term, there was a great deal of seething resentment similar to that felt in Beijing. This resentment was the foundation of BRICS (the economic group originally consisting of Brazil, Russia, India, China, and South Africa). Opposition to the dollar, rather than any joint vision of shared ideological or geostrategic preferences brought the member states together. Commentators supportive of the dollar’s continued dominance love to insist that BRICS has no unifying ideology. That is true but it’s also irrelevant. Stalin, Churchill, and Roosevelt lacked a common “vision” in 1941-1945, but that did not prevent them from very effectively crushing their enemies.
To make matters worse for the dollar’s global standing, over the past decade three successive administrations have used unilateral sanctions—based on American laws or government decrees—as a weapon against economic and political rivals, most notably but not only Russia and China. The dollar has become a political weapon. Foreign governments were penalized and restrained in their economic and financial activities using the dollar, effectively treating them as subjects to American domestic legislation. Laws with extraterritorial scope such as the Foreign Corrupt Practices Act (FCPA) and Countering America’s Adversaries Through Sanctions Act (CAATSA) allow the U.S. government to sanction foreign entities and individuals at will, or have them investigated by the Department of Justice or the SEC. In a notable early case, in 2014 the French bank BNP Paribas was fined just under $9 billion for having authorized financial flows in dollars by entities under U.S. sanctions.
A backlash was both predictable and inevitable. In the five years leading up to 2021, the share of the dollar in central bank reserves fell from 70 percent to 59 percent. Dollars held by non-American banks fell from $7.1 trillion to $6.5 trillion between December 2021 and December 2022. The greenback accounted for two-thirds of the world’s monetary reserves in 2003, 55 percent in 2021, and just 47 percent in 2022. The decline of 8 percentage points in the space of one year is remarkable, equal to 10 times the average annual rate of decline of the dollar’s market share recorded in previous years.
The process has gained dizzying momentum with the war in Ukraine, the ensuing de facto sequestration of over $300 billion worth of Russian assets in the Western world, and an enormous battery of sanctions against Russia—and, potentially anyone doing any business with her. Last August at the BRICS summit in Johannesburg, South Africa, six new members were accepted into the group’s ranks: Argentina, which has long struggled with inflation and money-printing; Egypt, the leader of the Arab world; Ethiopia, one of Africa’s fastest-growing economies; and Iran, Saudi Arabia, and the United Arab Emirates, all energy giants.
The rapid liberation of OPEC from Washington’s control is one of the most impressive geopolitical and financial features of the process. In fact, over the past year it has resulted in the adoption of oil policies blatantly at odds with U.S. government interests. At least three-dozen additional countries are applying to join the bloc, including the emerging economic and demographic behemoth Indonesia, as well as Thailand and Kazakhstan.
BRICS, let us repeat, consists of a very diverse group of countries unlikely to become a political or military alliance any time soon—or even to develop a common currency. What the member countries do have in common is the desire to weaken the dollar’s global grip and to settle bilateral trade among themselves in their own currencies. For example, in August the Indian government settled payment to the UAE for one million barrels of oil with the rupee. This was the first time India and the Emirates used a currency other than the dollar in their transactions. At the same time several key BRICS members have discarded tens of billions of dollars’ worth of U.S. Treasury bonds. China reduced its holdings of U.S. Treasurys from $835.4 billion in June to $821.8 billion in July, a decrease of $13.6 billion in just one month. China has now unloaded a total of $117.4 billion worth of U.S. government debt in one-year period. Brazil and India have reduced their Treasury bonds holdings by $2.7 billion and $2.3 billion respectively over the same period.
Admittedly, at first glance these figures indicating a decline in the dollar’s dominance may not seem particularly impressive, but they indicate a clear trend—and they reflect the desire of foreign U.S. bond holders to avoid the “sterling trap”—the relationship of interdependence in which a government that owns another country’s securities or reserves cannot dispose of them quickly without harming itself. Most notably this happened to France in 1928, when its central bank crippled itself by selling most of its massive sterling holdings at once and suffered huge losses as a result. The strategy of the BRICS members seems to be not to buy any new U.S. bonds, but to dispose of their existing ones slowly and steadily. At the same time the central banks of these member countries are considering retail issue of central bank digital currencies (CBDC) which would accelerate de-dollarization by encouraging a greater use of the local currency.
The hegemony of the dollar will not disappear overnight, but it is being steadily eroded. Its influence and diffusion will progressively decline, coming to cover a much smaller share of world trade—probably between 25 and 30 percent—a decade from now. The end of the dollar as the global reserve currency will be good news for Americans in the long-run, because for decades the dollar has been a key pillar of the U.S. government’s insane and malevolent project of global empire. Denying the swamp the mighty weapon of effectively cost-free inflationary financing of the ever-expanding warfare-welfare state is both desirable and likely. In that sense, Russia, China, India are doing America a true favor.
The process of de-dollarization will not, in itself, lead to the end of U.S. monetary hegemony, or by extension to its bid for full-spectrum dominance. This process constitutes an integral part of a much more important dynamic: de-globalization of the world. The geopolitical axis of the planet is shifting decisively eastward from the Western hemisphere and the North Atlantic.
The U.S. owes its victory in the Cold War to the formulation of a grand strategy that was based on a precise perception of geopolitical reality. Curbing the power of the Eurasian heartland was the basis of that strategy. It required the projection of American power along an unbroken chain on the periphery of the Soviet ecumene—from the far north of Norway through central Europe and the Balkans to the Middle East and the Subcontinent as well as Southeast Asia and the island chain from the Philippines through Taiwan and Okinawa to Japan and South Korea. In the geopolitical sense, the Cold War theater in Europe and on the Asian periphery, China above all, represented a whole. The strategy denied the Soviets hegemony over Eurasia and thus control over the world island. The separation of China from the zone of Soviet control proved no less significant than the willingness of the U.S. to provide the infrastructure for the Western defense of Europe.
The essential determinants of American strategy during the Cold War were outlined in the works of Halford Mackinder and Nicholas Spykman. Even if the immediate authors of that strategy were not directly familiar with the work of these two giants of geopolitical thought, the work of Mackinder and Spykman did much to form the Zeitgeist and the context of the intellectual debate in the United States after the end of World War II. Their ideas proved capable of penetrating behind and above the immediate military and political events, to grasp the essence of permanent, spatial dimensions of international relations. They knew that the three most permanent and important factors in international relations are geography, power, and money.
No such luck today. It is almost embarrassing to compare Antony Blinken or Victoria Nuland to Mackinder or Spykman. The unworthy creatures of the swamp dabbling in grand strategy today may continue insisting on the need to uphold what they call the “rules-based international order”—in reality, a brutally hegemonistic disorder of their own making—but they will look increasingly pathetic doing so as the dollar continues its steady decline. Their ad-hoc embargoes, wanton sanctions, and ideologically motivated linkages between financial transactions and political decisions (think, transgenderist obsessions and the alphabet cult) will be relegated to the rubbish heap of history within a decade.
Thus, there is still hope for the world—unless America’s current political elites blow it up, rather than concede that they have failed.