The demise of the dollar: What comes after that?

Part I of II

Endless ink has been spilled by economists and financial analysts in their efforts to predict the impact of de-dollarization. As might be expected, most of those who embrace a US-centric view of the world and who defend the status quo paint a gloomy picture. They warn of the nightmarish consequences of a Russia- and China-dominated world order, of the threats to freedom and to human rights that this could pose and of a potential breakdown in global trade, due to lack of trust and transparency. 

Without wishing to summarily dismiss these concerns, I do believe it is important to examine crucial shifts like the de-dollarization one rationally and dispassionately. So, for example, it is rather alarmist to predict major trade disruptions because “people do no trust the renminbi as much as the trust the USD”, and this is because if people don’t trust a currency they won’t trade in it, and if they don’t trust a government, they won’t buy its debt – and if they do, they will demand to be compensated for the risk they take on. The world has always worked exactly in this way and there’s no reason to think this will change now. 

However, it is interesting to note here that this argument is part of a wider narrative. “Fear of the unknown” is one of the oldest tricks in any political strategy book and it has been used in many different contexts. It relies on the same line of reasoning that was deployed against crypto or any form of private currency too: “this has never been tried at scale in the modern global economy, it cannot be trusted and it is extremely reckless to allow a potentially destructive alternative to compete with and to threaten the status quo, which we know we can rely on”. But can we really rely on it? Or more precisely, who exactly can rely on it? 

There is no way of knowing what currency will finally emerge as an actual, realistic competitor to the USD. It might be the Petro-Yuan, it might be the “basket of currencies” concept that BRICS+ members are reportedly working on. Or it might be nothing in particular at all: just a slow abandonment of the “world reserve currency” idea in general and a return to doing business in local currencies or in whatever makes the most sense in each case and whatever the actual contractual parties decide on. Liberty-loving people and those of us who are in favor of a real free market system, clearly root for the latter scenario. However, the most important thing to understand in this debate is that there is no reason to blindly accept that the current system is better, or even defensive for that matter.

Absolute power corrupts absolutely”

If it applies to people, it applies to money too, or at least to the people who happen to wield the absolute power of that money. The US dollar has long enjoyed its place on the throne and it might be tempting to deduce from that that the American people have also enjoyed the benefits of it too. Well, some American people have, a minuscule minority, while the rest of the country, and the rest of the world, have been paying the price in more ways than one. 

As Patrick Barron pointed out in a recent article, “Americans should welcome the end of the fiat dollar. The fiat dollar has been a tool for government to rob not only the rest of the world but the American people, too. Monetary debasement destroys capital. We see irrefutable evidence of this in the fact that America spends as much on defense as the next  ten nations combined. Defense spending is non-productive. It may be necessary, of course, but excessive defense spending represents real resources withheld from meeting the needs of the American people. American industry has been starved of the capital it needs. The inevitable rise in consumer prices represents a real transfer of wealth to the early receivers of the newly printed dollars from the rest of society, especially retirees attempting to live on a lifetime of savings. Their savings diminishes in purchasing power every day.”

But the implications go beyond the financial realm. The weaponization of the USD has facilitated and provided the means for geopolitical decisions that led to incalculable harm; most of it directed at civilians, at innocent families and ordinary citizens. Any time the US government decides to “blacklist” another country, to impose sanctions or to restrict or suspend trade, it is not the leadership that suffers. In fact, it is everyone apart from the leadership that suffers. 

Long before the Ukraine war broke out and the US targeted Russia with measures like that, we saw the effects of the strategy in much poorer nations, like Venezuela and Cuba. The economic devastation they caused, did not make a dent on Maduro or Castro; it didn’t even make them reconsider their oppressive rule and they way they treated their own people. It did have a very serious and very destructive impact on the citizens themselves though, who now had to suffer not only the autocratic boot on their throats, but also poverty, the loss of their livelihoods and perpetual desperation. 

———-END OF PART 1

In the upcoming second part, we’ll take a closer look at the importance of incremental progress on the currency front and we’ll see how we could be standing on the precipice of a historic shift; even if it doesn’t feel like it from our present vantage point. 

Claudio Grass, Hünenberg See, Switzerland

This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland. 

This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore please feel free to share and you can subscribe for my articles by clicking here

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