The World Is Seeing How the Dollar Really Works

Adam Tooze in Foreign Policy: 2022 has been a year of dollar power—power that manifests itself in both overt and subtler forms.

In the spring, the financial sanctions slapped on Russia’s Central Bank following Russian President Vladimir Putin’s invasion of Ukraine demonstrated the extent of U.S. financial sway, especially when it is exerted in cooperation with America’s European partners. If you export far more than you import and thus hold really large foreign exchange reserves—like Russia’s $500 billion—there really is nowhere else to hold them other than dollars or euros. If it comes to a confrontation, that puts you at the mercy of the financial authorities of the United States and its alliance partners. NATO reveals itself to be a financial power.

Russia has, so far, ridden out the storm, but to do so it has had to close its financial system to the outside world. Its imports have been squeezed to barely more than half their pre-crisis level.

When the sanctions were applied, the shock to Russia provoked the question of whether a monetary system that conferred such one-sided power on the United States could possibly be sustainable. More here.

COMMENT FROM AN ANALYST, AUTHOR in Asia Pacific: The US dollar underpinned the post-War economic reconstruction of the US-led non-communist “free world”, with the Superstructure fashioned with Bretton Woods bodies, e.g., the World Bank, European and Asian avatars, the IMF, and later, GATT. By co-valuing the dollar and gold (the gold standard), the USA was able to secure and perpetuate what long-term Federal Reserve Chairman Alan Greenspan called the US Dollar’s “exorbitant privilege”. As long as the economic dominance of the US-led OECD faced no challenge, this pattern persisted even after Nixon discarded the Gold Standard. Institutional frameworks refined after economic shocks in the 1970s and since then, tied world economies to reliance on this dollar-denominated fabric of transactions. Only very recently have there been marginal moves that erode the Greenback’s power, but no alternatives have emerged. None is on the horizon either.

Syed Muhammad Ali, Security Expert in Islamabad says, “The 21st Century wars are not about capturing territory but to promote the influence, values, power and wealth and the ability to legitimize its pursuit through diplomacy, media and international laws.”

Amb. G R Baloch, analyst and foreign affairs observer: “The post World War II global financial architecture based on Dollar dominated market placed and operated through IMF and World Bank continues to be the only global financial system in vogue. I don’t see in short term or even midterm any other global system or global currency replacing the Dollar dominance.”

A Pakistani defense & security analyst says, “For West – Economics follow military…”