18 May, 2024

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Threats To The Hegemony Of The US Dollar

By Kumar David

Prof. Kumar David

The answer to the question which is implicit in my title is that the world has changed a great deal, both post-Covid and as an accumulation of changes accruing since at least the Great Recession of 2009 when Obama tried his best to rescue capitalism. There are four Great Powers (US, China, EU and recently Russia) massaging the world and four other players (India, Brazil, Japan and the UK) to take account of. First is the USA, still global hegemon, second China which will within a decade overtake it for the rank of largest economy, third the European Union and fourth Russia which is now playing a strategically significant role. Add the other four (India, Brazil, Japan and the UK) and I seem to have bitten off quite a lot. Let’s see what I make of the task. 

At the end of WWII, the US was undisputed hegemon, globalisation the planetary ideology and the dollar was king. China then started rewriting the rules of the Great Game using the Belt and Road Initiative, the BRICS-group and a new post-Ukraine link with Russia, Saudi Arabia and Iran. Last year a summit between China and the Gulf Cooperation Council deepened China-OPEC ties. In a paradoxical way the Ukraine war pushed China and Russia closer. In economic terms China is the senior partner with an economy that is five times larger but Putin has turned Russia into a strategic player. The world is fracturing into a multipolar entity. It is unavoidable that this will undermine both the hegemony of the US and the global role of the dollar.

A significant factor bearing on my topic is this correlation among oil producing countries that emerged in the peace accord between Saudi Arabia and Iran brokered by China. Even worse for the US dollar is talk of settling oil accounts in Yuan, the ‘Petro-Yuan’. Were this to happen the dollars international status would be seriously undermined. There is also mention of Saudi Arabia and Iran joining BRICS; if that were to happen most of the world’s people and most of its oil production will be in groupings that exclude the United States. You can collect a great deal of information on these trends through Web searches and YouTube videos.

The great players
(USA, China, Russia and the European Union)

The Petro-Yuan is not the only attempt at de-dollarization. Another challenge to dollar hegemony is more serious. China and India are paying for commodities in renminbi, rupees and UAE dirhams. India has initiated rupee settlement of some accounts and China has approached GCC countries to make settlement in Yuan. Both countries pay for Russian oil in their own currencies. With the expansion of BRICs to beyond Brazil, Russia, India and China, non-dollar of trade flow is proliferating. International transfers are carried out by processes such as SWIFT by banks under the hegemony of the US government hence it is risky but necessary to unpin these from US government control and to create alternatives. These efforts are facilitated by the fact that the current the account surpluses of China, Russia and Saudi Arabia are at record highs. 

These three are involved in mining, manufacturing, gold extraction and farming & fishing while the US is less involved in direct investment in production in fast developing countries; activities in which it has less experience. It prefers to dabble in finance, insurance, stock brokering and mergers & acquisitions, not hard industry and agriculture. Such expertise is not a perfect fit to the needs of developing Africa, South America and Central America. Brazil and Argentina will soon launch a joint currency called the “sur” which could become a Euro like project that could embrace much of South America.

China has long pondered on the idea of settling non-oil trade in local currencies that exclude the greenback, according to UAE minister Thani bin Ahmed Al Zeyoudi. China seeks to weaken the dollar by pushing for the yuan to replace the greenback in oil deals. The move seeks to chip away at the Petro-dollar regime enthroned in the 1970s where after all global oil trades were settled in dollars.

Obstacles to dethroning the dollar

Incumbency, stability, liquidity, and absence of alternatives strengthen the US dollar as ‘de facto’ international currency and safe asset. it won’t be easy. Thanks to its global recognition it is easily cashable everywhere in the world. Incumbency is a great psychological advantage. Ninety six percent of the trade between North and South America between 1999 and 2019 was conducted in dollars; I do not have the statistics for recent years but it must still be considerable.

It is not the safest long-term store of value; that is the millennial privilege of gold. Even among currencies the Swiss Franc outranks the dollar for safety. Another challenge which I do not believe will have much traction is central bank digital (CBD) currencies. I dismiss crypto-currencies’; undependable as long-term stores of value (I tell my rich friends to buy gold).  But the block-chain, a technology for globalised information storage) has my endorsement. 

If China cashed all of its U.S. holdings (US$ 1.1trillion; same as Japan) the U.S. dollar would depreciate and the yuan appreciate, making Chinese goods more expensive and benefitting American trade. A multi-currency universe can only come hand in hand with political multi-polarity. We are some way from that because both Russian and Chinese military technology, which is what counts in limited-theatre engagements, are behind American technology. Hanging on to a large a megaton nuclear arsenal is irrelevant in a world of assured mutual destruction. 

Let me now touch on US determination to suffocate Chinese technology by banning microprocessor chip design capability, artificial intelligence, quantum computing, 5G, advanced semiconductors and next generation ultra-thin chip manufacturing capability. The US is reportedly going to ban ultra-thin chip making technology from reaching China. IBM recently unveiled an unbelievable 2-nanometer (nm) chip technology which will put 50 billion transistors, each the size of five atoms, on a space no bigger than a fingernail. The landmark technology—the smallest, most powerful microchip so far—could quadruple the life of cell-phone batteries and slash the carbon footprint of data centres.  

The competition is on; Samsung, and Taiwan Semiconductor Manufacturing Co the famed TSMC, have separately announced competing plans to produce this chip by 2025. In August 2022 the U.S. and Japan unveiled plans to build a joint research centre focused on 2-nm technology.

Faced with US sanctions since 2020 China has not been able to obtain from the Netherlands Extreme Ultra Violet (EUV) lithography fabrication machinery for the 7nm to 21nm range. It seems that so far China has been able to fabricate only 28nm chips on its own.

In previous columns I have spoken of the symbiotic relationship of economic expansion of China and Russia in the post-Covid, post- Ukraine war conjuncture. The two countries have a natural need to collaborate with each other and a 4300 km common border; the fifth longest common border in the world after USA-Canada if you include the Alaska border, Russia-Kazakhstan, Argentina-Chile and China-Mongolia borders. In future years as a paradoxical consequence of the Ukraine war it will assume far greater economic importance. Russia has the resources (it is the resource richest country in the world) and China huge wealth seeking productive investment opportunities. A powerful economic relationship will grow over time. That seems natural.

While I was more than half way through drafting this column, a friend brought to may notice a brilliant discourse about challenges to the hegemony of the dollar by Fried Zacharia, CNN-Channel’s top political analyst. Please find the time to log in.

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Latest comments

    • 14
      1

      As Nimal said , KD sems fried after a long protest march in scorching SF weather conditions, in support of threats against $ hegemony.

      • 15
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        Seems fried

        • 0
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          Constant corrections means concentration is lagging. Synapses could be misfiring. Could be sick, confused, forgetful. That’s how Alzheimer’s begins. Leads to dementia.

  • 7
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    “…Fried Zacharia, CNN-Channel’s top political analyst.”

    Poor Zakaria! Full-fried or half-fried?

    FAREED ZAKARIA!

  • 3
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    Professor Kumar made a massive calculation on nano processors planted Quantum computer about the prospects of his CC candidate placed and won in the 2015 election, the Yahapalanaya government. In 2019 the Yahapalanaya records made 6.9M Modayas to elect a Hitler. Evil and White Flag Murderer were wiped out along with their parties. After that Professor stopped predicting in Langkang politics and concentrated on predicting American fall. Anne Pavum thamai! The loan China gave is in Dollar, not in Yuan. If China wants that loan back, America will print dollars and give it to them. That is how recently America revived the recessions created by bank failures. China has no other way to demand those loans. (Most of them in bonds). This will bring American assets cheap and other countries will rush to buy them. America will be able to manufacture and export at a much cheaper price. The cost disadvantage on American products will be eased. That is how the suddenly appreciated Yuan and depreciated Dollar will be Balancing. Communist Professor Kumar has no understanding of the American economy’s buffering ability for suddenly needed dollar’s expansion and shrinking values. This is not possible with a highly government-controlled Yuan. It seems the only option left for the Professor is asking Old Rowdy king to recommend for an apprenticeship under Abeygunawardena, to thrive again in horoscope reading.

  • 3
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    I fully support the concept promoted by China and Malaysia that Asia should establish its own “Asian Monetary Fund”. If Russia too supported it, (considering that 77% of Russia’s land is in Asia), who knows, the proposed “Asian Monetary Fund” may introduce a new currency for the Asian continent.
    There are 48 countries and 3 dependent territories of China in the Asian continent. Every Asian country has its own unique culture, religious practices and ethical ideas. Unlike the IMF, the proposed Asian Monetary Fund won’t have any issues in acknowledging that economies of Asian countries are traditionally rooted in their respective cultures.
    Loans approved by the US-dominant IMF and the World Bank for culturally different countries are always accompanied with pre-conditions such as social and economic reforms in line with cultures and economies of developed Western countries.
    Interestingly, the IMF and the World Bank do not recognize the three Es of Sustainability which are; 1. Economy 2. Ecology and 3. Equity (Social). Cultural sustainability, which comes under Equity is all about maintaining and preserving cultural norms, beliefs, customs and rituals, and passing them to future generations. Actually, the United Nations should recognize cultural sustainability as a separate pillar of sustainability.

  • 15
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    Dr. KD,

    The U.S. has many talking heads and think tanks who have no other job but to watch the world with an eagle eye and raise the alarm at the slightest hint of any threat to America’s status as the global hegemon. But in weaving a grand narrative, they often exaggerate, are too early, etc.

    These narratives ignore critical facts about autocratic countries. For instance, the arbitrary treatment of businessmen, allowing them to become billionaires one moment and then placing them under house arrest or threatening them with death at the whims of an autocrat. Can such countries be relied upon for trade and investments? These countries have great upheavals and bloodletting still to come. The large democratic countries, on the other hand, went through such upheavals early, decades or centuries ago, and now have stable and transparent systems, despite any appearance to the contrary under people like Trump.

    Also, whatever the EU felt under Trump about moving away from the dollar, the war in Ukraine has exposed the EU’s heavy reliance on America for defense, and they are likely to use the dollar even more than before and become more integrated with an America-led global coalition of democracies.

    • 1
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      One wonders why country after country in Africa and now Latin America is lining up behind a country other than the US for development.
      *
      Let us wait a few years or even less to see how things will move in Europe after their economies are well and truly screwed up by the US.

  • 2
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    The talk of the town these days is the “leaked secret Pentagon documents” on the Ukraine crisis.
    As some officials and western media claim, they are authentic documents except in the case that showed the “real” number of Russian and Ukrainian casualties. Everybody has the same questions on this “security breach” of the US Intelligence.
    1. Why is everything else true and only the section that shows the number of casualties of Russia and Ukraine is false?
    Some media claims that the blurred section proves that Russian media has tried to alter it. Why is only this part highlighted? Some have already concluded that it was Russia which had leaked these top secret Pentagon documents. This is a little hilarious. All this time, western media tried to portray that Russia is losing; they ran out of weapons; their troops were ill-trained. Suddenly, the same media wants to give “credit” to Russia that they were capable of accessing Pentagon top secret documents and publishing them on social media. Why?
    2. Who released the secret documents?
    Who else, the Pentagon officials themselves.
    Contd’……….

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      3. How did war gamers get access to secret Pentagon documents? This is what I think of the origin of the leaked documents.
      a. A top Pentagon official or officials released their “war assessment” to Ukraine or gave access to Ukraine. The US didn’t lose anything by doing that, did they? Other than charts and photographs, the rest is already known “stuff”. I myself warned Russia in January or February that “something big was brewing” and the Bakhmut factor was only a deception. Isn’t it obvious that Wagner and Ukraine are scratching each other’s backs in Bakhmut?
      b. I believe Ukraine got access to the US war assessment officially and somehow, a third party (I don’t think Russia) got hold of those documents without the knowledge of the former, downloaded them and released them from time to time, until the “sleepy” Pentagon “woke up” and “noticed them”.
      Contd’……….

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        c. Can you believe that the US officials were not aware of the leaked secret documents until the mainstream media brought it to their attention? Maybe they are fed up with Ukraine and now contemplating moving onto Taiwan. I don’t think it is easy for the US to help Taiwan in a war scenario because unlike Ukraine which has easy access to other countries on land, the location of Taiwan is more favourable to China than the Western allies of Taiwan unless the US has plans to involve one or two other proxies, too. In fact, the US government is legally wrong about its approach to the Taiwan issue.
        d. Does the US consider Russia and China enemies? Nope. I don’t think so. Even NATO doesn’t consider them enemies. Only Ukrainians think Russia is their enemy. What I see is a political game by the US led NATO to mislead their public.
        Contd’……..

        • 2
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          4. What is the motive behind leaking the top secret Pentagon documents?
          i. Are Democrats preparing for a misinformation campaign about a Russian involvement in the 2024 US Presidential Election? In February this year, Tucker Carlson revealed how the Democrats misled the American people about a Russian involvement in the 2016 Election to garner public support for Hilary Clinton. He said that it was a fabrication (in different words). This is only what I could remember of the article I read. Does somebody plan to use this for the 2024 election, again, in favour of Democrats?
          ii. Or, given the fact that the leaked documents are authentic, is it a signal for Ukraine to agree to a diplomatic settlement with Russia?
          Contd’………

          • 2
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            5. Another point came to my mind about the motive of the leaked secret document.
            Does the US intend to be in good books with Russia before negotiating a deal to get the detained Wall Street Journalist released? I may be wrong, but I could remember, at the end of October last year, Russia revealed a Ukrainian plot to use a dirty bomb in Kherson, and, then, early December, they exchanged Brittny Griner with a jailed Russian guy in the US. What is noteworthy is, this deal was offered by the US in July 2022. However, it materialized only after the dirty bomb story. No, I may be imagining things. But, I can’t help connecting dots, because at the time I thought it was the US which tipped off Russia about the dirty bomb.
            Contd’…….

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              6. Having said all these, I could be wrong. Where? Everything, except, “something big was brewing” and “the 2024 US Election”. Who will win in 2024? The Democrats hands down. They are utterly inefficient, duplicitous, racist, unfair and chaotic, but the Americans will choose them again. I have nothing against them. They are harmless. They keep the world “entertained”.
              7. Ukraine may be territorially divided. It may be the price they pay for Pentagon-funded medical experiments conducted in their “bio-labs” against humanity. Over 6.8 million people have died from Covid-19. After President Putin’s special military operation in Ukraine, Covid-19 magically disappeared except one recent case in China which shows that one or more bio-labs are still in operation somewhere. Thousands of Russian soldiers sacrificed their lives in Ukraine to save the lives of others in the world. The Pentagon should take full responsibility for the deaths of Ukrainian soldiers and civilians. This is the first time, more military and less civilian deaths occur in this kind of a situation, entirely because Mr. Putin has prioritized evacuating civilians from the battle zone, rather than achieving quick military gains. In WWII, 50 million civilians and 25 million soldiers were killed. Just imagine.
              Contd’……..

              • 2
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                8. Wars are good for the bygone era. We can solve anything through dialogue. How many times has President Putin offered to negotiate, only to be ridiculed and blocked by the US and Britain? Take China’s recent diplomatic achievements in uniting Saudi Arabia and Iran for example. How easily China brought the two rival countries together? (The credit should go to China’s former Foreign Minister and Director/CCPCCFAC Wang Yi) Just look at the historical initiative taken by Saudi Crown Prince MBS to restore peace in West Asia. This is the leadership the world yearns for. Millions of Syrian, Yemeni and Afghan children need humanitarian aid. Then, there are African countries that need serious help too.
                9. The world wants peace. The US is not the sole owner of the earth. Every country has a right to exist. Every nation has a right to live in peace. Cultural rights and ethical principles of every country should be recognized. What is right for one culture may be abhorrent to other cultures.
                10. The United States should stop wrecking other countries for political and economic gains. President Joe Biden can easily change the world for the better. I wish him well and a long life!!!!

                • 10
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                  Chimpa rumors are that, your hero Mr. Putin’s health is rapidly declining to the extent he is loosing his senses (vision, taste, one sided weakness and numbness) due to brain tumor which may be primary or secondary to metastasis ( primary elsewhere) and also suffering from long standing Parkinson’s . Is that true ??? Anyway, who would have thought of his social media mouth piece dying in Saint Petersburg due to an explosion ??? . RIP.

                  • 1
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                    Chiv
                    Thank you for an excellent sample of your factuality, and clearing for me what was only a suspicion.

                    • 0
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                      SJ, I said suspicion and not fact.. (RUMOUR) Unfortunately in Lankans in general consider suspicions as facts (sterilization techniques, Covid cremations) and facts as suspicions (international conspiracies) western propaganda.) Anyway I “wish you a Happy New year”
                      .

  • 4
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    Biden is harmless. lol. That is like saying WW3 is not our problem. We are in the precipice looking down at mutually assured destruction . Actually these democrats are far worse and republicans. They seems to suffer from the small d$%& problem. If you really take account each and every one of them has started a war.

    as for the leaks The reason why they say the causality figures is wrong is because it is not the propaganda they are spreading. but instead it is more like to the realistic assessments.

    As for American technology. The Chinese have caught us and are far infront of

  • 4
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    US technologies. and as for 2 nm Chips. lol can any one tell me how does the US lead in this technology when they don’t have a single foundry located in the US ? Every thing is in other countries. All the Chip development is done in India and all the front end manufacture is in Taiwan .

  • 0
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    Constant corrections means concentration is lagging. Synapses could be misfiring. Could be sick, confused, forgetful. That’s how Alzheimer’s begins. Leads to dementia.

    • 8
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      Constant repetition of comments, not knowing what you typed few minutes or hours before is definitely a sign of dementia. ( short term memory loss). But you have more things to worry, like psychosis .Attention and concentration are least affected in dementia. According to your logic KD must be demented ( fried instead of Fareed) Talk to your Psychiatrist who may care to explain these to you. Now get lost, there are better things for me to do .

      • 6
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        By the way, according to news media 500 thousand LKR is missing from Central bank NOT Bank of Ceylon. Lankan CID is looking for you to help in finding missing funds ( IMF )

      • 0
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        Fareed turning to fried is probably the work of the spell checker .lol

  • 0
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    “There are four Great Powers (US, China, EU and recently Russia) massaging the world “

    forget about russia,it is not a great economic power,only a great military power.Won’t last.

    “First is the USA, still global hegemon, second China which will within a decade overtake it for the rank of largest economy, “

    china has already overtaken the US and is now the largest economy on a PPP basis. click link below

    https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

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