The dethroning of the USD; an irreversible track

By Al Mayadeen English
Source: Le Figaro
5 Apr 2023 15:55

Le Figaro says that the US has used to currency to pressure its European allies and impose its political will on them.

Photo showing the Chinese yaun falling on top of the USD. (Reuters)

The USD has been used to coerce and exploit countries, including Washington's allies, and this politicization of the globe's reserve currency has put the world on an irreversible path of de-dollarization, French newspaper Le Figaro reported on Wednesday citing a publication.

In a 1965 press conference, French General Charles de Gaulle rebuked the “exorbitant privilege of the US dollar”.

The American currency had indeed become by far the top reserve and exchange currency in the world, after the United States had, from 1946 to 1971, agreed to exchange it for gold, at the fixed rate of $35 an ounce.

To strengthen their reserves, the central banks obviously jumped on the dollar, whose deposits were stable like gold, but obviously more easily manageable. When the Americans ran the dollar printing machine, it was as if they were producing gold.

De Gaulle understood that they were financing their war in Vietnam and their space conquest on the backs of Europeans. This is why the Banque de France, in 1965, began to systematically exchange its dollars for gold. On August 15, 1971, America decided abruptly, without having informed any of its allies, to put an end to the convertibility of the dollar into gold.

From 1973, a year marked by a sharp increase in the price of oil (raw materials always invoiced in dollars), the problem of petrodollars appeared. The enormous sums released by the energy markets were reinvested in priority on the American markets, providing a comparative advantage to the economy of the United States, to the great frustration of their European partners.

"The dollar is our currency, but your problem," Treasury Secretary John Connally warned them shortly after the unilateral suspension of the convertibility of the dollar into gold.

The impeachment of the dollar king

Created in 1999, the euro succeeded as a global currency, but could not match the depth and liquidity of the New York markets, due to the lack of a single European Treasury. The euro did not dethrone the dollar as the world's main reserve and exchange currency.

On the sole responsibility of the United States, the international financial crisis of 2008 paradoxically strengthened the dollar. In a March 2009 press conference, Barack Obama predicted that the dollar would retain its dominance in world trade and reserves. His argument was not economic but political: “Because America has the most stable and transparent regime in the world!”

Everyone understands how the US budget, Federal Reserve, and financial system work, while their Chinese equivalents appear opaque. The dollar remains the safe haven currency. When there is a global financial crisis, investors take refuge in the dollar, even if the crisis is of American origin. This is what happened in 2008-2009 when the dollar revalued against the euro and the yen.

Today, it still represents 59% of world foreign exchange reserves (compared to 72% in 1999). But, by transforming their currency into a weapon of political pressure, the Americans have, unwittingly, started a worldwide movement to impeach the dollar king.

The Weaponization of the Dollar

In 2014 the BNP Paribas - A French international bank - had to pay a $9 billion fine to the United States for having, legally under European and French law, financed (in dollars) exports from Cuba, Sudan, and Iran. But these three countries were under US embargo. As the compensation was made in New York on the account of the BNP, American justice declared itself territorially competent.

This is how the Americans have imposed their terms on other countries. And European companies had to comply, as seen when they left Iran in 2018 after Trump unilaterally withdrew from the deal and denounced the 2015 Vienna nuclear talks.

The next step in the "weaponization" of the dollar was in 2022. After the war in Ukraine started, the US froze the foreign exchange reserves of the Russian central bank denominated in dollars. Non-Western leaders at that time most likely have self-reflected saying:

“If I am at war with a neighbor and this conflict does not please Washington, I can suddenly lose a large part of my foreign exchange reserves. I will therefore drastically reduce my trade in dollars.”

This is what Russia is now doing, and also Saudi Arabia. Its last oil bill to China was denominated in yuan (whose offshore market is already worth the equivalent of $200 billion).

Moreover, the BRICS (Brazil, Russia, India, China, and South Africa) plan to create their own currency to finance their exchanges. China has already developed its own interbank electronic settlement system. It offers an alternative to the Western-controlled cooperative Swift system.

The de-dollarization of the world will not be completed overnight. But it is clearly an irreversible movement.