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The term describes a geopolitical phenomenon of the 20th century in which the U.S. dollar, a [[fiat currency]], became the primary [[reserve currency]] internationally. Three developments allowed dollar hegemony to emerge over a span of two decades.  
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{{concept
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|wikipedia=https://en.wikipedia.org/wiki/Dollar_hegemony
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|type=commercial
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|description=US dominance because of US dollar as primary reserve currency.
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|start=1971
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}}
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The term describes a geopolitical phenomenon of the 20<sup>th</sup> century in which the [[U.S. dollar]], a [[fiat currency]], became the primary [https://en.wikipedia.org/wiki/Reserve_currency reserve currency] internationally. Three developments allowed dollar [[hegemony]] to emerge over a span of two decades.  
  
 
== Stages of development ==
 
== Stages of development ==
−
=== Abandoning the gold standard ===
+
=== Abandoning the gold-exchange standard ===
−
The [[Bretton Woods system]] established a fixed exchange rate regime based on a gold-backed dollar in 1945. The USA did not view cross-border flow of funds necessary or desirable for promoting trade or economic development. In response to the accrual of negative consequences from the Triffin dilemma<ref>[http://en.wikipedia.org/wiki/Triffin_dilemma Triffin dilemma]</ref>, President [[Richard Nixon]] abandoned the Bretton Woods regime in 1971 and suspended the dollar's peg to gold as [[US]] fiscal deficits from overseas spending caused a massive drain in U.S. gold holdings.
+
The [[Bretton Woods system]] established a fixed exchange rate regime based on a gold-backed dollar in 1945. The USA did not view cross-border flow of funds necessary or desirable for promoting trade or economic development. Starting in the 1959-1969 administration of President [[Charles de Gaulle]] and continuing until 1970, France swapped its dollar reserves for gold at the official exchange rate, reducing US  economic influence. This drain in US gold holdings along with the fiscal strain of expenditures for the [[Vietnam War]] and persistent balance of payments deficits led US President [[Richard Nixon]] to abandon the Bretton Woods regime on August 15, 1971 and abandon the dollar's peg to gold.  The $USD devalued with respect to Gold and in October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. From this point, the international monetary system was made of pure fiat money.
 +
 
 
=== Petrodollar ===
 
=== Petrodollar ===
−
Denomination of oil in dollars after the 1973 [[Middle East]] oil crisis increased demand for US dollars; see [[petrodollar]]s.
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{{FA|Petrodollar}}
 +
The denomination of oil in dollars after the 1973 [[Middle East]] oil crisis increased demand for US dollars.
 +
 
 
=== Deregulation ===
 
=== Deregulation ===
−
The emergence of deregulated global financial markets after the [[Cold War]] made cross-border flow of funds routine.
+
The emergence of deregulated global financial markets after the [[Cold War]] made cross-border flow of funds routine, further consolidating the stranglehold of the US dollar.
  
 
==Advantages for the USA==
 
==Advantages for the USA==
 
*Lower import costs/domestic inflation than what would exist by normal trading alone.
 
*Lower import costs/domestic inflation than what would exist by normal trading alone.
−
*Ability to run large trade deficits (by exchanging valuable resources for paper IOUs)<ref>[http://yaleglobal.yale.edu/content/why-dollar-hegemony-unhealthy Why Dollar Hegemony Is Unhealthy]</ref>
+
*Ability to run large trade deficits (by exchanging valuable resources for paper IOUs)<ref>[http://yaleglobal.yale.edu/content/why-dollar-hegemony-unhealthy Why Dollar Hegemony Is Unhealthy]</ref>  A variation on this is that the USA cannot face a balance of payments crisis, because it can purchase imports in its own currency (that it can simply print). <ref>[http://en.wikipedia.org/wiki/Exorbitant_privilege Exorbitant privilege]</ref>
 
*Increased demand for US financial assets (driving up prices of stocks and bonds and lowering interest rates,  therefore increasing (apparent) household wealth).<ref>[http://yaleglobal.yale.edu/content/why-dollar-hegemony-unhealthy Why Dollar Hegemony Is Unhealthy]</ref>
 
*Increased demand for US financial assets (driving up prices of stocks and bonds and lowering interest rates,  therefore increasing (apparent) household wealth).<ref>[http://yaleglobal.yale.edu/content/why-dollar-hegemony-unhealthy Why Dollar Hegemony Is Unhealthy]</ref>
−
*Foreign-held US dollars can be used as "''hostage capital''". In the event of political conflict between the United States and another nation, the former with all its military power can confiscate or freeze these assets or otherwise limit their use. It can impose special regulations or at least use regulations for a time, in order to attain certain political, economic, or other goals.<ref>[http://faculty.georgetown.edu/imo3/petrod/define.htm Definition of Petrodollars]</ref>
+
*Foreign-held US dollars can be used as "''hostage capital''". In the event of political conflict between the [[United States]] and another nation, the former with all its military power can confiscate or freeze these assets or otherwise limit their use. It can impose special regulations or at least use regulations for a time, in order to attain certain political, economic, or other goals.<ref>[http://faculty.georgetown.edu/imo3/petrod/define.htm Definition of Petrodollars]</ref>
 +
*Because of the international reserve-currency status of the $US, any conflict or destabilisation in another country will tend to increase the hegemony of the $US and so increase the advantages listed above.
 +
=== Examples ===
 +
1979: After the [[Iranian Revolution]], the United States ended its economic and diplomatic ties with Iran, banned Iranian oil imports and froze approximately 11 billion US dollars of its assets.<ref>Suzanne Maloney (2010): [http://iranprimer.usip.org/resource/revolutionary-economy "The Revolutionary Economy"]. United States Institute of Peace. Retrieved 17 November 2010.</ref>
 +
 
 +
2013: The chairman of the Majlis Planning and Budget Committee said $100 billion of Iran’s money was frozen in foreign banks because of the sanctions imposed on the country.<ref>http://www.tehrantimes.com/politics/111742-100-billion-of-irans-money-frozen-in-foreign-banks-mp</ref> As of 2013, only $30 billion to $50 billion of its [[foreign exchange reserves]] (i.e. roughly 50% of total) was accessible because of sanctions.<ref name=ABC>{{cite news
 +
  |url=http://abcnews.go.com/Politics/wireStory/sanctions-biting-iran-budging-20044000
 +
  |title=Sanctions Biting but Iran Not Budging
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  |date=23 August 2013
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  |work=''[[Associated Press|AP]]''
 +
  |author=Marjorie Olster
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  |authorlink=
 +
  |accessdate=24 August 2013}}</ref>
 +
 
 +
2014: The unilateral $9 billion American fine against [[BNP Paribas]] for violations of U.S. sanctions that were not laws of France or the other countries involved in the transactions.<ref>[http://www.nytimes.com/2014/07/03/upshot/the-dollars-big-role-in-foreign-policy.html In BNP Paribas Case, an Example of How Mighty the Dollar Is]</ref>
 +
 
 +
== Monetary 'Weapons of Mass Destruction' ==
 +
 
 +
{{Q|The U.S. has what I would refer to as financial weapons of mass destruction. - [[Satyajit Das]]<ref name=das/>}}
 +
 
 +
Naked short-selling is betting on the devaluation of stocks not owned by the speculator. Used as a concerted action they may cause the collapse of the target while granting the attackers huge profits.
 +
 
 +
The problem is, these bets do not appear as such but as decrease in demand and therefore lead to the outcome the speculator desires, very much in the way of a [[self-fulfilling prophecy]]. This is because, before placing bets (or virtually selling) one must '''virtually''' own these stocks and the market can not distinguish with sufficient certainty between ''real'' and ''virtual'' stock.
 +
 
 +
Typically carried out involving [[hedgefunds]] profits can be further increased by acts of [[fraud]], such as [[blackmail]], smear campaigns, [[espionage]], harassment, [[extortion]], [[bribery]], rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft.<ref>[[File:Deepcapture-the-story-v1.pdf]]</ref><ref>[[File:Mark_Mitchell-The_Miscreants_Global_Bust-Out.pdf]]</ref><ref>[http://antisocialmedia.net/?s=gary+weiss Gary Weiss]</ref>
 +
 
 +
Another weapon is the catch 2-2 situation the world finds itsel in, binding it to the dollar. In a recent interview Satyajit Das, a derivatives expert, former banker, and author of numerous books explains:
 +
{{QB|If you’re say China or Japan or the Middle Eastern oil-rich countries who own a lot of U.S. Treasury bonds, you know the U.S. is going to devalue the currency and has very low interest rates so you don’t want to hold a U.S. dollar bond, but if you sell them, all that does is hurt you because the U.S. dollar falls further and interest rates go up triggering capital losses—so you got to just keep buying the stuff to preserve your existing position. Some years ago I wrote a piece on China and I used the analogy of China’s problem with its extraordinary $3.8 trillion of reserves. I liken it to what is referred to as a “bouncing mine” or a “bounding mine”. Now in anti-personal warfare you use two types of mines: one is you step on it and it explodes and obviously it does mortal damage to you; the other one is when you step on it, it doesn’t go off—it’s when you step off of it, it goes off. And the U.S. dollar and U.S. Treasury bonds are very much like a bounding mine for foreigners. Now this is not actually necessarily good for the world but, in the short-term, it’s certainly good for the United States.
 +
<ref name=das>"Das: U.S. Playing with Financial Weapons of Mass Destruction", Financial Sense, 24 Jan, 2014, accessed 19 Nov, 2014, http://www.financialsense.com/contributors/satyajit-das/us-playing-with-financial-weapons-mass-destruction
 +
</ref>}}
 +
 
 +
== Reactions against US Dollar hegemony ==
 +
=== Eurasian alliance's drift away from the petrodollar ===
 +
2014, Jun: PBOC Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin led a meeting held in Shanghai.  The meeting discussed cooperating on project and trade financing using local currencies.<ref>[http://www.zerohedge.com/news/2014-06-26/gazprom-ready-drop-dollar-settle-china-contracts-yuan-or-rubles Gazprom Ready To Drop Dollar, Settle China Contracts In Yuan Or Rubles
 +
]</ref>
  
 +
===  Creation of SWIFT Alternative ===
 +
2014, Sep: According to Itar-Tass, [[Russia]] and [[China]] are discussing setting up a system of interbank transactions which will become an analogue to International banking transaction system SWIFT, First Deputy Prime Minister Igor Shuvalov told PRIME on Wednesday after negotiations in Beijing.<ref>[http://www.zerohedge.com/news/2014-09-10/what-petrodollar-russia-china-create-swift-alternative Russia, China To Create SWIFT Alternative]</ref>
 +
{{SMWDocs}}
 
==References==
 
==References==
−
=== Notes ===
 
 
{{Reflist|30em}}
 
{{Reflist|30em}}
−
===See also===
 
−
video: [[The_absurdity_of_Dollar_hegemony]]
 
  
 
===Page credit===
 
===Page credit===
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|site=Wikipedia  
 
|site=Wikipedia  
 
|date=9 September 2014
 
|date=9 September 2014
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|url=http://en.wikipedia.org/wiki/Dollar_hegemony  
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|url=https://en.wikipedia.org/wiki/Dollar_hegemony  
 
}}
 
}}

Latest revision as of 14:40, 26 August 2023

Concept.png US/Dollar/hegemony Rdf-entity.pngRdf-icon.png
Typecommercial
Start1971
US dominance because of US dollar as primary reserve currency.

The term describes a geopolitical phenomenon of the 20th century in which the U.S. dollar, a fiat currency, became the primary reserve currency internationally. Three developments allowed dollar hegemony to emerge over a span of two decades.

Stages of development

Abandoning the gold-exchange standard

The Bretton Woods system established a fixed exchange rate regime based on a gold-backed dollar in 1945. The USA did not view cross-border flow of funds necessary or desirable for promoting trade or economic development. Starting in the 1959-1969 administration of President Charles de Gaulle and continuing until 1970, France swapped its dollar reserves for gold at the official exchange rate, reducing US economic influence. This drain in US gold holdings along with the fiscal strain of expenditures for the Vietnam War and persistent balance of payments deficits led US President Richard Nixon to abandon the Bretton Woods regime on August 15, 1971 and abandon the dollar's peg to gold. The $USD devalued with respect to Gold and in October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. From this point, the international monetary system was made of pure fiat money.

Petrodollar

Full article: Petrodollar

The denomination of oil in dollars after the 1973 Middle East oil crisis increased demand for US dollars.

Deregulation

The emergence of deregulated global financial markets after the Cold War made cross-border flow of funds routine, further consolidating the stranglehold of the US dollar.

Advantages for the USA

  • Lower import costs/domestic inflation than what would exist by normal trading alone.
  • Ability to run large trade deficits (by exchanging valuable resources for paper IOUs)[1] A variation on this is that the USA cannot face a balance of payments crisis, because it can purchase imports in its own currency (that it can simply print). [2]
  • Increased demand for US financial assets (driving up prices of stocks and bonds and lowering interest rates, therefore increasing (apparent) household wealth).[3]
  • Foreign-held US dollars can be used as "hostage capital". In the event of political conflict between the United States and another nation, the former with all its military power can confiscate or freeze these assets or otherwise limit their use. It can impose special regulations or at least use regulations for a time, in order to attain certain political, economic, or other goals.[4]
  • Because of the international reserve-currency status of the $US, any conflict or destabilisation in another country will tend to increase the hegemony of the $US and so increase the advantages listed above.

Examples

1979: After the Iranian Revolution, the United States ended its economic and diplomatic ties with Iran, banned Iranian oil imports and froze approximately 11 billion US dollars of its assets.[5]

2013: The chairman of the Majlis Planning and Budget Committee said $100 billion of Iran’s money was frozen in foreign banks because of the sanctions imposed on the country.[6] As of 2013, only $30 billion to $50 billion of its foreign exchange reserves (i.e. roughly 50% of total) was accessible because of sanctions.[7]

2014: The unilateral $9 billion American fine against BNP Paribas for violations of U.S. sanctions that were not laws of France or the other countries involved in the transactions.[8]

Monetary 'Weapons of Mass Destruction'

The U.S. has what I would refer to as financial weapons of mass destruction. - Satyajit Das[9]

Naked short-selling is betting on the devaluation of stocks not owned by the speculator. Used as a concerted action they may cause the collapse of the target while granting the attackers huge profits.

The problem is, these bets do not appear as such but as decrease in demand and therefore lead to the outcome the speculator desires, very much in the way of a self-fulfilling prophecy. This is because, before placing bets (or virtually selling) one must virtually own these stocks and the market can not distinguish with sufficient certainty between real and virtual stock.

Typically carried out involving hedgefunds profits can be further increased by acts of fraud, such as blackmail, smear campaigns, espionage, harassment, extortion, bribery, rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft.[10][11][12]

Another weapon is the catch 2-2 situation the world finds itsel in, binding it to the dollar. In a recent interview Satyajit Das, a derivatives expert, former banker, and author of numerous books explains:

If you’re say China or Japan or the Middle Eastern oil-rich countries who own a lot of U.S. Treasury bonds, you know the U.S. is going to devalue the currency and has very low interest rates so you don’t want to hold a U.S. dollar bond, but if you sell them, all that does is hurt you because the U.S. dollar falls further and interest rates go up triggering capital losses—so you got to just keep buying the stuff to preserve your existing position. Some years ago I wrote a piece on China and I used the analogy of China’s problem with its extraordinary $3.8 trillion of reserves. I liken it to what is referred to as a “bouncing mine” or a “bounding mine”. Now in anti-personal warfare you use two types of mines: one is you step on it and it explodes and obviously it does mortal damage to you; the other one is when you step on it, it doesn’t go off—it’s when you step off of it, it goes off. And the U.S. dollar and U.S. Treasury bonds are very much like a bounding mine for foreigners. Now this is not actually necessarily good for the world but, in the short-term, it’s certainly good for the United States. [9]

Reactions against US Dollar hegemony

Eurasian alliance's drift away from the petrodollar

2014, Jun: PBOC Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin led a meeting held in Shanghai. The meeting discussed cooperating on project and trade financing using local currencies.[13]

Creation of SWIFT Alternative

2014, Sep: According to Itar-Tass, Russia and China are discussing setting up a system of interbank transactions which will become an analogue to International banking transaction system SWIFT, First Deputy Prime Minister Igor Shuvalov told PRIME on Wednesday after negotiations in Beijing.[14]

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References

  1. ↑ Why Dollar Hegemony Is Unhealthy
  2. ↑ Exorbitant privilege
  3. ↑ Why Dollar Hegemony Is Unhealthy
  4. ↑ Definition of Petrodollars
  5. ↑ Suzanne Maloney (2010): "The Revolutionary Economy". United States Institute of Peace. Retrieved 17 November 2010.
  6. ↑ http://www.tehrantimes.com/politics/111742-100-billion-of-irans-money-frozen-in-foreign-banks-mp
  7. ↑ {{URL|example.com|optional display text}}
  8. ↑ In BNP Paribas Case, an Example of How Mighty the Dollar Is
  9. ↑ a b "Das: U.S. Playing with Financial Weapons of Mass Destruction", Financial Sense, 24 Jan, 2014, accessed 19 Nov, 2014, http://www.financialsense.com/contributors/satyajit-das/us-playing-with-financial-weapons-mass-destruction
  10. ↑ File:Deepcapture-the-story-v1.pdf
  11. ↑ File:Mark Mitchell-The Miscreants Global Bust-Out.pdf
  12. ↑ Gary Weiss
  13. ↑ [http://www.zerohedge.com/news/2014-06-26/gazprom-ready-drop-dollar-settle-china-contracts-yuan-or-rubles Gazprom Ready To Drop Dollar, Settle China Contracts In Yuan Or Rubles ]
  14. ↑ Russia, China To Create SWIFT Alternative

Page credit

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