Ukraine’s war has lasted nearly a year. De-dollarization discourse has accelerated since then. Even orthodox economists Galbraith and Eichengreen have joined the bandwagon, but they don’t see an avalanche that might dethrone the dollar yet.
The mainstream believes the US financial market’s depth makes the dollar irreplaceable. Currently, yes. Where else can wealth be safely invested, traded, and paid in quickly? I underlined safely because such a market was unsafe for confiscated Russian assets and is unsafe for any would-be consumer whose views don’t align with US colonial designs. Depth and safety are subjective. The confiscation of Russian assets by Europe and the US raises the question: who has vast pockets?
Money is a social construct. It’s a means of exchange/reserve and savings. Money is a form with an aura whose attractiveness is to create additional money, through credit. Money follows norms, too. Any currency must be acknowledged as valuable, and people’s knowledge of it as a transactional and social form gives it symbolic force. The dollar is unique among the world’s currencies since many individuals of different ethnicities trust it.
Dollars and dollar products like treasuries and bonds are risk-free. Pension funds scurry to invest in dollar assets that will increase and not lose value over time. The dollar’s power comes from the fact that it’s a universal means of exchange and savings. Common knowledge, which fuels financial power, must be constantly produced and replicated. There are suitable theories.
Instead of relying on real manufacturing capacities, fiat money depends on futuristic capitalism and debt tradability. Although the US contributes for less than 20% of global output, its deep financial market and legitimacy as a state allow it to cover the credit needed for many worldwide transactions and deposits.
Theories are ideological instruments that display or hide reality to serve different social groups’ objectives. Despite holding less than 20% of global output, the US controls many vital resources and global chokepoints. Its extensive military bases and ability to destroy opponents demonstrate this power.
If the power to destroy and sow instability overseas is counted as output, then the US produces substantially more than the 20 percent it reports as GDP. Such a megalithic process supports the dollar as the world reserve currency. This knowledge, reproduced globally by the capacity to destruct, is the real reason for the deep US financial market, as opposed to some hallucinatory moneyed economy whose debts are tradable, and the erosion of that capacity is heralded by the rise of the multipolar world when Russia began its de-Nazification of Ukraine campaign. Changing the power structure behind US finance changes the recognition that the dollar is the only indisputable global currency due to US dominance. Why?
Russia’s resiliency
When the Central Bank of Russia linked its currency to gold a month after the battle, many saw it as a blow to the dollar status quo, especially for the EU group, which relied on Russia for cheap LNG. They couldn’t pay in rubles for oil. Germany’s Finance Minister Robert Habeck: “We won’t be blackmailed by Russia” In 2022, the US and EU introduced bills to embargo Russian gold. The Group of 7 agreed to limit Russia’s gold exports by June 2022. By embargoing Russia’s gold exports, seizing assets, and banning SWIFT, the West hoped to push Moscow. Sanctions on Russia de-dollarized the country. By imposing more sanctions, the West de-dollarized the world.
Even though the sanctions first weakened the ruble, the currency quickly rebounded since many of Russia’s exports are priced in rubles. In ten months, the Ruble turned from turbulent to stable. The currency is still higher than pre-war values, and as Russia continues trading with third nations through new monetary channels, the crisis in Europe will worsen. If anything, Russia’s continued success despite sanctions illustrates that there’s more to an economy’s worth than its dollar GDP. The dollar’s commodity-based benchmark applies equally to the Ruble, which trades wheat and oil.
Russia’s new MIR payment system, which parallels SWIFT and MasterCard, issued 161 cards worldwide by September’s end. In November, Russia asked BRICS+ countries to consider a single gold trade system. Russia is testing international digital payments with corporations, according to reports. Russia is larger and more resilient than Iraq, Libya, and Venezuela, thanks to China.
China-bashing
Volodymyr Zelensky, the Ukrainian president, confessed that the war in Ukraine was ‘for’ the US. In a December address to Congress, he warned that if Russia won the war, the post-WWII world order and dollar’s hegemony would collapse. With China’s economy overtaking the US in real terms and commanding much of global production and trade, an alternative financial system is imminent – unless the balance of forces tilts in favor of the US as it beats Russia in Ukraine and extends its dominion to the Eurasian corridor.
What do the US and Russia want? It wants Russia and China split. China, Russia’s de facto ally, has de-dollarized its economy. But that doesn’t mean they’re a bloc. Russia and China have different policies and ideas. In this trade/currency conflict, they both oppose a unipolar world over a multipolar one. Both aspire to develop without neoliberal or imperialist meddling. China is heavily involved in the Ukraine crisis.
Even the latest Pentagon defense policy concedes Russia is not as worrisome as China, which it calls “the US’s largest security concern.” US Defense Secretary Lloyd Austin said in October 2022 that China “is the only competitor with both the intent and the power to reshape the international order,” while Russia “can’t systematically challenge the US over the long term, but Russian aggression poses an immediate and sharp threat to our interests and values.” China took barely seven decades to become a worldwide superpower and implement the world’s largest poverty alleviation initiative. It set the record without enslaving or geocoding the world.
The Chinese economy easily absorbs foreign technologies and meets foreign market requirements. It’s a pioneer in space exploration, finance, medicine, green technology, urban construction, and military breakthroughs. Non-convertible currency insulates China’s economy against external shocks and capital flight. It draws on its enormous currency reserves denominated in dollars – mostly US government debt – and invested in US treasury bonds to protect against short-term capital flow and preserve its own currency’s competitiveness in crises.
What disturbs the West is that China not only raised its own living standards but also helped others. China’s Belt and Road Initiative (BRI) supported infrastructure in some of the world’s poorest economies to boost productivity, growth, and economic mobility. The Asian country defied neoliberalism as a philosophy and economic policy by upholding “Chinese-style” socialism.
China exported an anti-imperialist and nationalist development model to the Global South as part of its dedication to Mao Zedong’s internationalism. China, the world’s greatest trade country, exporter, and holder of US debt, never coerced anyone to borrow from it to enslave them or pay its war effort. Add this to China’s defiance of western sanctions against Russia, and Sino-Western ties will hit an all-time low, especially in light of charges that China helped Russia circumvent sanctions.
Given China’s growth trajectory, which is separated from militarism and built on working-class resistance, China will never become a war-mongering nation. It grows without war. Having been the target of imperialism for millennia suggests that China has no intention of pursuing such an agenda and will continue to fight it. As a powerful socialist nation, it’s opposed to the post-WW2 Western system.
This justifies the US’s recent economic and political provocations against China. The US restricted China’s semiconductor exports to western markets and halted the transfer of chip technologies. It aims to block Huawei’s access to US banks over allegations of “economic espionage” Tsai Ing-wen was humiliatingly lost in Taiwan’s recent election, ending the Taiwan disaster.
China counterattacks
China will inevitably retaliate. Retaliating by reducing worldwide demand for US currency is one measure. China’s de-dollarization approach include building trade payment systems based on partner currencies, dumping US treasuries, and disrupting the petrodollar system while buying gold.
China puts much of its excess in US Bonds. The ‘nuclear option’ argument assumes China may sell all of its treasuries to undermine the American economy. That alternative appears fanciful and might harm everyone, including China. The possible flooding of the worldwide exchange market with billions of dollars of American debt may lower government bond prices and raise interest rates. US treasury bond rates are the global borrowing standard. If they are raised hastily, another global slowdown may result.
China and others want a sensible solution to the US debt situation and a multi-polar currency and world-saving means. China formerly had $3 trillion US debt. In October 2022, it fell below $1 trillion in treasury holdings. It’s slowly paying its debts in US money.
As a counter-hegemonic approach, China has converted its debts into real assets and invested them in the third world out of concern of suffering the same destiny as Russia. Belt and Road Initiative transforms US-denominated money into real capital. The Chinese-funded BRI turns US bonds into weapons against the US, whereas US imperialism incapacitates and disempowers the developing world.
Petrodollar system breakdown
Reducing dollar transactions reduces worldwide demand for the dollar, but China and other countries with trade surpluses have no other option. Analytically, a multi-currency saving bond might replace US savings instruments. John Maynard Keynes proposed this in 1944, but the US declined. The alternative multi-national savings instrument would result from shifting global pressures, especially if oil becomes denominated in other currencies.
Xi’s visit to Saudi Arabia is a step toward a new oil payment system. On December 20, 2022, the Chinese head of state attended the first ever China-Arab state summit and delivered a key speech “underscoring the importance of carrying forward the spirit of China-Arab friendship featuring solidarity and mutual assistance, equality and mutual benefit, inclusiveness and mutual learning, and jointly building a China-Arab comity.”
The decision disrupts the petrodollar system, which has used the US dollar to buy oil for 50 years. Dollar-priced oil redeemed the US’s 1971 exit from the gold standard. As a strategic commodity that accounts for 20% of global trade volume, oil is a life-sustaining energy supply that maintains the dollar in demand. The more the US creates dollars to fulfill rising trade demand, the more it can live off dollar seigniorage, or buying foreign real assets with credit. No other kingdom had similar advantages.
The US lends money in its own currency and usurps other nations’ riches under the current imperial tributary system. So when China says it wants to buy oil with the Yuan and make separate transactions, it plans to reduce worldwide demand for the dollar, thereby reducing the US’s ability to provide global credit and imperial rents.
China hoards gold, but only partially. It has the most gold. China’s central bank upped its gold holdings by 32 tons in November, increasing the total to 1980 tons worth $111.65 billion. The gold standard can’t replace a commodity- and production-based fiat money system. China securitizes its finances by possessing gold and building its own development bank, foreign lending institutions, and payment system.
Traders and investors in China view gold as a buffer against excessive volatility and a store of value. China closely monitors gold imports and exports. China, the world’s largest gold producer, hoards much of it. China utilizes price arbitrage to encourage traders to buy foreign gold. Most of that gold was bought in the West, especially the UK and US, where gold is cheaper. Gold predominance alone cannot create depth like the US market.
Daily, US influence over vital commodities channels around the world reproduces dollar market trust. The US inherited the European colonial system, and its control comes from physical and ideological force. Gold alone may not be enough to dislodge a dollar-based commodity-control system.
Alternative to US financial market in the works
China has signed deals, mostly with Russia, to buy energy with non-dollar currencies. De-dollarizing trade routes may produce some results, but the world still needs a universal savings medium. On paper, establishing a bond whose guarantors include the main powers is not difficult; yet, if it materializes, it undercuts US and US-associated elites’ financial rents.
A meaningful de-dollarization involves a geopolitical shift and dollar consensus erosion. Ukraine’s turmoil and Europe’s disintegration portend the end of US currency primacy. The current European retreat vis-à-vis Russia and China disadvantages the US, unlike the twentieth-century wars that benefited the US. As a capitalist clone, the European working class may continue to self-harm at the behest of its bourgeoisie. Then, alternatives to the currency and its bonds emerge.
With $65 trillion in off-balance sheet debts and a moral hazard-ridden CDO and Repo market, a catastrophic catastrophe is imminent. Given the unstable financial structure, the change will be brutal. The US is a massive net debtor in its own currency, which is the world’s savings medium. Yet, the world must abandon a system that pawns man and nature’s destiny for a few. China and Russia have decided to de-dollarize wars and pollution, which must be humanity’s alternative.