The United States may have a powerful military, but its true strength lies in the value and status of its currency.
With the U.S. dollar seen and accepted as the world reserve currency, America has the privilege to control the global financial system, run federal deficits without having to worry about consequences, and literally print trillions of dollars out of thin air.
This unique advantage also allows the U.S. to keep interest on its accumulated debt low and provide its citizens a standard of living that would not otherwise be possible. But how long will it last?
Since the end of World War II, the U.S. has held what is often referred to as an “exorbitant privilege” over the global economy. From the destruction of the war came America’s rise and, with it, the acquisition of most of the world’s gold reserves and half the world’s GDP. Its wealth gave the U.S. the power to dictate the terms of the Bretton Woods Agreement between 44 countries.
This agreement stipulated that the dollar would be pegged to gold, while all other countries’ currencies would be pegged to the dollar. The essence of it was that the dollar was as good as gold, backed by its reserves. Countries could rest assured that they could at any time exchange their dollars for physical gold.
For a few decades, the agreement worked well. But the U.S. began running large deficits during Lyndon Johnson’s “Guns or Butter”policy of the late 1960s, which led certain European countries, particularly France, to begin to exchange their dollars for gold. In 1971, concerned that its gold reserves were being depleted, the Nixon administration made a unilateral decision to temporarily close its gold window, turning the dollar into a fiat currency.
This marked the end of Bretton Woods and ushered in an era of floating exchange rates that still exists today.
The U.S. avoided the economic hardship of essentially devaluing its currency by implementing the ingenious plan of creating the petrodollar. This simple but far-reaching idea had significant financial and geopolitical consequences. In essence, the U.S. and Saudi Arabia entered into an agreement whereby the Saudis agreed to exclusively sell their oil in dollars and invest those dollars in U.S. treasury bills. In return, America provided the Saudis a security guarantee.
Oil is the most widely traded commodity in the world, and by pricing it in dollars, there was an ensured global demand for American currency.
Needless to say, the Europeans were not pleased with America’s broken promise. To fight back, some European nations began discussing the possibility of returning to a gold standard which excluded the U.S. dollar.
The U.S. administration became aware of the European plan and, according to the minutes of the 1974 meeting between Henry Kissinger and Assistant Secretary Thomas Enders, it was made clear that this would not be allowed to proceed. The highlights of that meeting were unambiguous to say the least. Collectively, European countries had more gold than the U.S. If they joined forces, they could set the price of gold at a higher level, thus creating additional reserves and credit. In Kissinger’s words, they would be able to create a “money printing machine.”
The minutes also clearly stated that such a move would be detrimental to America’s interests and that, if Europe tried it, America would “squash” them. Ultimately, for the plan to succeed Germany would have had to cooperate. But with the Soviet Union looming on its doorstep, it was in no position to cross the U.S.
America’s strong dollar policy was successful for the ensuing decades. But by the late 1990s, two important seeds began to grow: China’s economy and America’s profligacy. By the early 2000s, America had transformed from once being the world’s largest creditor to becoming its largest debtor nation and the Federal Reserve began a reckless monetary policy which has lasted for the last two decades.
Following the 2008 financial crisis, China complained about how the U.S. was devaluing the dollar through its large accumulation of debt and excessive printing of money and began to voice its desire to introduce a new global financial system. With the notable exception of countries subject to U.S. sanctions (e.g., Russia, Venezuela, Iran, and North Korea), the idea of a new monetary system was met with indifference. The concept of anything superseding the dollar was considered unthinkable by most of the developed world as verging on heresy by America.
That is, until recently.
When Russia invaded Ukraine, everything changed. The U.S. and NATO countries (the West) not only imposed sanctions on Russia, but they also froze its U.S. dollar reserves and blocked it from the SWIFT dollar transfer system.
Seeing an opportunity, China took notice and encouraged much of the world to follow suit. The race began to find alternatives. While the West was right to confront Russia for its unprovoked aggression, they underestimated the global response to these sanctions.
The BRICS countries and much of the global south have been reluctant to sever ties with Russia for a variety of reasons — from needing their oil, food, fertilizer, and military equipment, to taking advantage of the Wagner Group to counter domestic anti-insurgency efforts.
Additionally, many in the global south have harbored long-held resentments towards the West’s rhetorical “rules-based world order,” which they see as hypocritical and self-serving. The freezing of Russia’s dollar reserves and exclusion from the SWIFT system also put countries on notice that they might be next.
Financial systems are built on trust and, if they are weaponized, they lose the trust necessary to retain their dominance.
As such, in just over a 12-month period, countries around the world mustered the courage to begin openly discussing the creation of alternative methods to conduct trade and settlement, as well as reducing their dollar reserves. The trade and settlement role of the dollar is where most of exiting will occur and where the demand for the dollar will fall away more precipitously.
Furthermore, BRICS countries have attracted numerous new member applications over the past year, with Egypt, Turkey, Algeria, and most recently Saudi Arabia showing interest and making declarations about creating a BRICS currency to compete with the dollar.
Many of these countries have been aggressively adding to their gold reserves over the past 13 years, and the size of their purchases has been accelerating, suggesting that perhaps any new currency might be backed by gold. Brazil (which has become increasingly vocal about its displeasure with the U.S. dollar system) and Argentina have started promoting the idea of creating a South American trading block and currency, the sur, similar to the European Union and euro.
The laundry list of dollar alternatives is long and growing daily. Examples include China testing cross-border digital currency settlements with Thailand and the UAE, insisting that sanctioned countries such as Russia, Iran and Venezuela accept yuan as payment for oil. Saudi Arabia is considering doing the same (there are rumors that Saudi is already selling oil for yuan and converting those yuan for gold on the Shanghai exchange). India is also buying some of its Russian oil in UAE dirhams. The simplest method, which is becoming increasingly popular, is bi-lateral agreements using local currencies.
The critical unanswered question is how the U.S. will respond to moves to de-dollarize. Any sudden decrease in U.S. dollar demand could have disastrous consequences for Americans. It could potentially trigger a U.S. dollar crisis leading to very high inflation, or even hyperinflation, and initiate a debt and money printing cycle that could tear apart the social fabric of society.
In short, any U.S. administration would ultimately consider any such de-dollarization moves to be matters of national security.
Much of the global community is cheering, however. A lot of sovereign debt held by the global south is denominated in greenbacks, and an overpriced dollar makes debt service nearly impossible today. Additionally, because most commodities are priced in dollars, many less developed countries are importing inflation that would otherwise accrue to the U.S.
That being said, BRICS nations should consider what America’s reaction to sudden shifts away from the dollar might be. History has demonstrated that it is exceptionally rare for a transfer of global economic power to take place without major warfare.
Despite America’s likely opposition, de-dollarization will persist, as most of the non-Western world wants a trading system that does not make them vulnerable to dollar weaponization or hegemony. It’s no longer a question of if, but when.
To break away from this hazardous trajectory, credible and inclusive dialogue regarding a new global agreement should commence now, in which major economies consent to a new monetary system (perhaps backed by gold and/or commodities) by consensus, including the U.S. This would inevitably involve substantial discomfort for the U.S., possibly to such an extent that it is politically unpalatable.
The best we can hope for is a process that facilitates the gradual decrease in dollar demand over a lengthy period of time, allowing the U.S. and other countries to adjust accordingly. A multipolar monetary system might provide a more equitable playing field to poorer countries and just maybe give the U.S. and the world longer-term economic and political stability. The likely outcome of this would still be quite chaotic and involve a drop in the standard of living for Americans. Nevertheless, this path appears inevitable, and such an option is preferable to the inevitable turmoil of the more extreme scenarios we have seen throughout history.
Mr. Giustra is co-chair of the International Crisis Group and CEO of the Fiore Group, a private firm managing a broad portfolio of private equity investments and companies, specializing in natural resources, entertainment, art, food and lifestyle. Giustra is also the founder of Lionsgate Entertainment, now one of the world's largest independent film companies. For over two decades the Giustra Foundation has supported innovative solutions to some of the world’s most pressing humanitarian and economic challenges — focussing on women and children, health and education, homelessness and refugee resettlement. The Giustra Foundation is actively involved in the global refugee crisis by providing humanitarian aid, along with being the founding partner in the Global Refugee Sponsorship Initiative.Mr. Giustra also sits on a variety of non-profit, private and public boards.
DOHA, QATAR — In remarks Sunday at the 21st Doha Forum in Qatar, Russian foreign minister Sergey Lavrov seemed to revel in what is becoming a groundswell of international frustration with the United States over its policies in Israel. Despite Russia’s own near-isolated status after its 2022 invasion of Ukraine, Lavrov glibly characterized the U.S. as on the wrong side of history, the leader of the dying world order, and the purveyor of its own brand of “cancel culture.”
“I think everybody understands that this (Gaza war) did not happen in a vacuum that there were decades of unfulfilled promises that the Palestinians would get their own state,” and years of political and security hostilities that exploded on Oct. 7, he charged. “This is about the cancel culture, whatever you don’t like about events that led to the current situation you cancel. Everything that came before February 2022, including the bloody coup (in Ukraine) and the unconstitutional change of power … all this was canceled. The only thing that remains is that Russia invaded Ukraine.”
Lavrov, beamed in from Russia to the international audience in Doha, went fairly unchallenged, though his interviewer James Bays, diplomatic editor at Al Jazeera, attempted to corner him on accusations stemming from Russia’s own bloody record in Chechnya in the 1990s and and 2000s and its ongoing military campaign in Syria, which Lavrov noted was at the “behest” of the Syrian government.
On the issue of the failed ceasefire vote at the UN Security Council, of which Russia is a permanent veto member, Lavrov said, “we strongly condemn the terrorist attack against Israel. At the same time we do not think it is acceptable to use this (terrorist) event for collective punishment of millions of Palestinian people.” Did he condemn the United States for vetoing the ceasefire measure? “It’s up to the regional countries and the other countries of the world to judge,” he declared.
When asked if there was a “stalemate” in the Russian war in Ukraine, and what the Russians may have gained from their invasion in 2022, he said simply, “it’s up to the Ukrainians to understand how deep a hole they are in and where the Americans have put them.”
On whether a ceasefire may be in the offing in that war Lavrov said, “a year and half ago (Zelensky) signed a decree prohibiting any negotiations with the Putin government. They had the chance in March and April 2022, very soon after the beginning of the special military operation, where in Istanbul the negotiators reached a deal with neutrality for Ukraine, no NATO, and security guarantees…it was canceled,” he added, because the Americans and Brits wanted to “exhaust (Ukrainians) more.”
Lavrov gleefully piggybacked on themes from an earlier forum panel on the Global South. He accused “the United States and its allies” of building “the model of globalization, which they thought would serve them well.” But now, Lavrov contends, the unaligned are using “the principles and instruments of globalization to beat the West on their own terms.” As for Russia, Lavrov deployed a little “cancel culture” of his own, cherry picking the high points of his country's history over the last 200 years to project a nation that he boasts will emerge unscathed by Western assaults today.
“In the beginning of the 19th century Napoleon (rose European armies) against Russia and we defeated him; in the 20th century Hitler did the same. We defeated him and became stronger after that as well,” he said. With the Ukraine war, the West will find “that Russia has already become much stronger than it was before this.”
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UN Secretary General Antonio Guterres speaks in opening session of the Doha Forum in Qatar, December 10. (vlahos)
DOHA, QATAR — The U.S. veto of the UN Security Council vote for a ceasefire in the war in Gaza is being met with widespread anger and frustration by the international community and especially in the Arab world, as reflected in opening remarks at the 21st Doha Forum in Qatar on Sunday.
Addressing the forum, UN Secretary General Antonio Guterres said the vote was “regrettable…that does not make it less necessary. I can promise that I will not give up.” He said since the Oct. 7 attack by Hamas in Israel and the ensuing Israeli retaliation in Gaza, “the Council’s authority and credibility were seriously undermined” by a succession of failed votes to respond to ongoing civilian carnage on the Strip.
Sheikh Mohammed bin Abdulrahman Al-Thani, foreign minister of Qatar, said the current crisis and the U.S. reaction to it, including its thwarting of the ceasefire call (it was the only vote of disapproval; the UK abstained) was exposing the “great gap between East and West ... and double standards in the international community.” He pointed to those drawing attention to war crimes in “other contexts” (no doubt referring to Russia in Ukraine ) “hesitating to call for the end of these crimes in the Gaza strip.”
He repeatedly called for the creation of new multipolar world order that "respects justice and equality between the people where no people are more powerful than the other."
The U.S. said it did not approve the ceasefire resolution Friday because of the lack of condemnation of Hamas in the language, and that it not include a declaration of Israel’s right to defend itself. U.S. ambassador Robert Wood said halting Israel’s military action would “only plant the seeds for the next war.”
The result is that people here at the forum say they are more convinced than ever that U.S. policy is reflexively and intimately intertwined with Israel's activities in Gaza. As Mohammad Shtayyeh, prime minister of Palestine, charged, Washington has given the “greenest of green lights” to what Israel is doing on the ground. This was exacerbated this weekend with news that the Biden Administration is bypassing Congressional review to send 13,000 tank rounds to Israel. This, despite efforts by Democrats in his own party to condition the transfer of offensive weapons to prevent their use against civilians.
Meanwhile, humanitarian advocates repeatedly called the situation on the ground “unprecedented.” In an interview with Al Jazeera reporter Stefanie Dekker on the dais, Philippe Lazzarini, commissioner-general of the United Nations Relief and Works Agency, said his own organization is “on the brink of collapse.” They have lost 134 relief workers in Gaza since Israeli operations began. He described staff in silent stupefaction over the loss of homes, families. “There is no doubt a ceasefire is needed; we want to put an end to hell on earth right now in Gaza.”
Khaled Saffuri, executive director of the National Interest Foundation in Washington, told RS he was struck by the backlash against American brands in his own travels in Kuwait and Qatar over the last week, citing customer and restaurant boycotts of Coke, Pepsi, MacDonald’s, and Starbucks. “It’s horrible,” he said of the lopsided UN vote. “America is losing a lot in the Muslim world.”
Dear RS readers: It has been an extraordinary year and our editing team has been working overtime to make sure that we are covering the current conflicts with quality, fresh analysis that doesn’t cleave to the mainstream orthodoxy or take official Washington and the commentariat at face value. Our staff reporters, experts, and outside writers offer top-notch, independent work, daily. Please consider making a tax-exempt, year-end contribution to Responsible Statecraft so that we can continue this quality coverage — which you will find nowhere else — into 2024. Happy Holidays!
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Journalists in the press room watch as Republican presidential candidate and former New Jersey Governor Chris Christie and fellow candidate and businessman Vivek Ramaswamy discuss an issue during the fourth Republican candidates' debate of the 2024 U.S. presidential campaign hosted by NewsNation at the University of Alabama in Tuscaloosa, Alabama, U.S., December 6, 2023. REUTERS/Alyssa Pointer
It's as if the Ukraine War has all but ended — at least for American politics.
If the Republican debates had occurred last year, they would have been consumed with talk over whether Vladimir Putin was readying to roll across Europe and how weak President Biden was for not giving Ukrainian President Volodymyr Zelensky our best tanks, our most powerful fighter aircraft, the longest range missiles we had — maybe even access to nukes.
But Zelensky wasn’t anywhere near the debate stage in Alabama last night, his name not even invoked. Fitting, we guess, since the Senate failed to pass an aid package yesterday that would have sent another $60 billion to Ukraine. This, despite administration claims that the war effort is literally running out of money. Biden even took to the airwaves Wednesday to warn of a NATO war if the funding wasn’t approved.
Republicans have been souring on the aid for months now, which might account for Ukraine’s diminished importance in the conversation. It was outweighed last night by the conflict in Israel, which in itself only drew three questions: Do we send in special forces to get the eight remaining American hostages back from Hamas? What kind of punishment could be slapped on university presidents who allow “pro Hamas” protests on campus? And how do we “get” Iran for purportedly being behind it all?
Ukraine was wielded, albeit briefly, as a blunt instrument. At the very least it gave us the tiniest of glimpses into the competing world views of the hawks on the dais (Chris Christie and Nikki Haley) and their chief agitant, Vivek Ramaswamy.
Haley raised the issue (without being asked about it) by fitting it into her usual stream of Domino Theory conciousness:
“The problem is, you have to see that all of these are related. If you look at the fact Russia was losing that war with Ukraine, Putin had hit rock bottom, they had raised the draft age to 65. He was getting drones and missiles — drones from Iran, missiles from North Korea. And so what happened when he hit rock bottom, all of a sudden his other friend, Iran, Hamas goes and invades Israel and butchers those people on Putin's birthday. There is no one happier right now than Putin because all of the attention America had on Ukraine suddenly went to Israel. And that's what they were hoping is going to happen. We need to make sure that we have full clarity, that there is a reason again that Taiwanese want to help Ukrainians because they know if Ukraine wins China won't invade Taiwan. There's a reason the Ukrainians want to help Israelis because they know that if Iran wins, Russia wins. These are all connected. But what wins all of that is a strong America, not a weak America. And that's what Joe Biden has given us.”
Vivek Ramaswamy responds:
“I want to say one thing about that tie to Ukraine. Foreign policy experience is not the same as foreign policy wisdom. I was the first person to say we need a reasonable peace deal in Ukraine. Now a lot of the neocons are quietly coming along to that position with the exceptions of Nikki Haley and Joe Biden, who still support this, what I believe, is pointless war in Ukraine. …One thing that Joe Biden and Nikki Haley have in common is that neither of them could even state for you three provinces in eastern Ukraine that they want to send our troops to actually fight for. … So reject this myth that they've been selling you that somebody had a cup of coffee stint at the UN and then makes eight million bucks after has real foreign policy experience. It takes an outsider to see this through.”
To which Chris Christie retorted:
“Let me just say something here, you know, his (Ramaswamy’s) reasonable peace deal in Ukraine. He made it clear. Give them all the land they've already stolen. Promise Putin you'll never put Ukraine in Russia, and then trust Putin not to have a relationship with China.” (Christie then essentially calls Ramaswamy a liar for suggesting he never said that.)
"These people are lying. These are the same people who told you about weapons of mass destruction in Iraq to justify that invasion didn't know the first thing about it if they send thousands of our sons and daughters to go die. The same people who told you the same in Afghanistan, where the Taliban is still in charge. Twenty years later, seven trillion of our national debt due to these toxic neocons. You can put lipstick on a Dick Cheney, it is still a fascist neocon today."
That was basically it. After $130 billion in U.S. taxpayer money since 2022, most of which we are being told has been spent in Ukraine. After hundreds of thousands of Ukrainians and Russians dead and maimed, Ukraine’s economy in such a state that the West has to prop it up, and NATO pledging more troops and weapons it doesn’t even seem to have, the issue was afforded a scant few minutes, and used only in the broadest of ways to pound each other. Gone was even the ghost of the old argument that the free world was at stake or that our obligation to Ukrainians was a moral imperative. It’s been reduced to a political cudgel, which is the first step to being memory holed in Washington. It happened to Iraq and Afghanistan in prior president debates 2012 and 2016.
The gist seems to be, maybe if we ignore it, it will just go away?