Dollar Hegemony and Multipolar Illusions

12 March 2024

Western governments grappling with extreme right-wing drifts, particularly the Biden government in the United States and Macron’s in France, welcomed Lula’s electoral victory in Brazil. Over the course of the first year and a few months of his government, Lula has repeatedly made anti-Western statements on a series of topics such as democracy (which he defined as “relative”), the war in Ukraine (he said that “if one doesn’t want it, two don’t fight”), his excellent relationships with Putin and even Medvedev, or the Maduro dictatorship in Venezuela (inviting the opposition candidate excluded from the electoral campaign by the regime to “stop crying”). Lula’s anti-Western stance seems to be a bet on the emergence of a multipolar world where the BRICS should play a new and fundamental role. As such, Lula has also increased his statements against the US dollar. 


During a visit to the then Argentine president (in January 2023), Lula said he was in favor of establishing a “common South American currency”  with the aim of “reducing dependence on the American dollar”. During a trip to Beijing, he explained that this was not an issue linked to Mercosur, but a “global” one: “Every day I wake up asking myself why the international currency has to be the American dollar”. He was thus defined as “the global leader who most belittled American leadership”. A note from the Federal Reserve on the future of US dollar dominance stated that “the agreement between Brazil and China to allow companies in both countries to establish exchanges issued in their domestic currencies in place of the dollar” was a Chinese attempt to promote the Yuan. For the current Brazilian government’s foreign policy, the Russian war on Ukraine could finally open the way for the geopolitical emergence of an alternative to North American hegemony: a multipolar world and, therefore,  a world with many currencies that could be used in international exchanges. These declarations and intentions presuppose that the decline of the “American empire” is not only already happening, but that it would be desirable as such – that it would automatically pave the way towards better governance of the world. China’s economic ascendence, coupled with the revival of Russian imperialism, would represent a positive fork in the road for countries like Brazil and Argentina. Furthermore, the BRICS bloc would put the construction of a common currency on the agenda. Even the proliferation of coups and tyrants in the African Sahel is to be welcomed should it represent a further step towards this global emancipation.


We do not have the space here to discuss whether the decline of the US dollar would automatically be good news for the Global South and more particularly for South America. Instead, let’s focus on the bottom line: is the US dollar truly in decline?


The Decline of the US Dollar?


The theme of the “decline” of civilizations is an old story. In general, it is one of the main vectors of reactionary narratives. As far as the dollar is concerned, it is also a very old narrative that is being revived and amplified. There is no need to look to Moscow, Beijing, or Brasília for this type of analysis. They are espoused by pacifist factions in the United States, as well as by realists in international relations and above all by the Trumpist far right. According to them, the American dollar could be on its way to becoming worthless paper, like the Deutsche Mark of the Weimar Republic in the 1920s. For Robert Kiyosaki, it’s toilet paper. Peter Schiff suggests that it is necessary to get rid of dollars now to better adapt to decisions made by several countries to replace the US dollar as a reserve and standard of value. During the sovereign debt crisis in Europe in 2010 and 2011, there were many comments that made Chinese liquidity the solution.


If the decline of the United States is accelerating due to the constant degradation of its domestic politics (Trump’s triumphant return to the White House in January 2025 would show that his first election was not an accident), the decline of the dollar is far from being a fait accompli. In 1990, the North American economy accounted for 25% of global GDP. In 2022, it continues to weigh… 25%. Estimates from the early 1990s would suggest that, by now, an Asian country should have overtaken the US as the new hegemonic center of the world. The “declinists” predicted that it would be Japan and the yen’s turn to take the place of the United States and the dollar. But, between 1990 and 2022, while Japan’s GDP grew by 25%, the United States’ GDP increased by 118% (and France’s by 60%). If we look at the growth of adult workers, the United States continues to lead: Japan increased by 45% and the United States by 60%. In terms of wealth produced per hour of work, America grew by 63%, Japan by 42% (France by 40%). So, for Tyler Cowen, it makes no sense for the United States “to panic about ‘de-dollarization’ when 88% of international trade involves the American currency (31% in Euro and only 7% in Yuan)”.


Currency as Language


We thus arrive at the question of whether the political decisions that aim to accelerate the decline of the dollar and determine its replacement have a chance of working.


Recently (April 2023), the City Council of Belo Horizonte – capital of Minas Gerais, the third most important state in Brazil – approved a bill that prohibits the use of gender-neutral language in schools in the city. Even if the law runs the risk of being judged unconstitutional, let’s assume it is enacted. The question is: will this law have any effect? Most likely the law would not be effective because there is nothing to fight against. As a journalist wrote, “any action to impose barriers or transformations in the language through decree will be ineffective”: That’s simply not how languages work. “Language does not change from the outside to the inside, nor from the top to the bottom: it changes because we change”. Nothing suggests that the cultural war against gender-neutral terms will succeed, and that the opposition will have something to fight. But if any term became popular, there would be no point in prohibiting its use. Languages change and flow, but they do so in an immanent and unpredictable way.


Why are we talking about language? Because currency flows and functions like a language, with a habitus, a custom. So the saying goes: “language is a dialect that has an army and a navy”. It seems, therefore, that language – like currency – is a sovereign reality, decreed by power. But what matters is the circulation, the deviation, the plasticity that allows a language to flow in a given space – whether or not it corresponds to a sovereign space. This does not mean that there is no relationship between language and sovereignty, as well as between currency and sovereignty; but that this relationship, on the one hand, does not explain either the functioning of language or currency and, on the other hand, that certain languages and certain currencies can circulate beyond these spaces.


It is important to emphasize that, given that no one has decided that this is the case, it is very difficult for anyone to be able to decide that this is not the case. The attempts to assert another hegemony took place between the former colonial powers (United Kingdom, France) and the United States. The United Kingdom saw the Pound Sterling lose its status as an international currency while English became the universal language: universal English is not that of England, but something else made up of the contribution of countless errors, accents, and deviations. In any country one can expect to find someone who speaks or reads it in a fully functional way, even if somewhat limited and incorrect when compared to standard English.


In 1967, in a classic article, Charles P. Kindleberger discussed the relationship between language and currency to counter the criticism against the dollar from the radical left (in an article in the Monthly Review) and Gaullist France (by the economist Jacques Rueff). The case of France was particularly interesting, as it involved both the role of the dollar and that of the French language. 


For Kindleberger it was a logic of prestige. A doubly ineffective logic: because the dollar standard already appeared to be the most economically efficient, and because the sovereign attempt to maintain French as the official language in international institutions had no chance of success: for an Anglo-Saxon, learning French was not a need, whereas for the French it was necessary to learn English. Even more, the author argued that there is an analogy between “the dollar in the international economy and the use of the English language in international institutions” . English, says Kindleberger, is “the currency of international communication”. In this sense, it is “of high interest for Americans and British people to know French, German, Italian, Spanish (…). But global efficiency is realized when all countries learn the same second language”. The second language that manages to be common is neither imperialist nor nationalist, but efficient. The same thing goes for currency. Furthermore, this is not the result of any centralized decision: “The power of the dollar and the power of English – Kindleberger argues – represent la force des choses and not la force des hommes”.


By force des choses means something that is built through the multiplicity of small decisions made every day. Gita Gopinath and Jeremy Stein say it this way: the dollar is used widely because it is used widely. This makes a language or a currency liquid: everyone trusts that they will be understood, and that they will be able to pass on the currency they have agreed to receive.


It is this self-reinforcing mechanism that defines the currency and explains why no one wants the peso in Argentina: because no one wants it. Trust has been broken and shattered – particularly with the many corralitos: seizures of savings carried out by governments of all political orientations. No one knows how to rebuild it. “Here, says a developer from Buenos Aires, if you don’t even see the money, no one signs anything”. What Argentines like to buy most are American dollars: according to estimates by the Central Bank of Argentina, Argentine families and non-financial companies keep something like US$260 billion in American currency (mostly in bank accounts abroad) . Meanwhile, in mid-August 2023, the Argentine Central Bank’s dollar reserves did not reach 24 billion.


The role and importance of the dollar (and English) do not make it impossible – emphasizes Paul Krugman – for Europe to use the Euro and in France to continue speaking French (although in French universities English is increasingly spoken). Perhaps one day the Euro will occupy a larger space, or people will start using Mandarin as a second common language in the world. But this will not be the result of a decision: no plan works if it is not born and validated in the life of decisions made every day.


The Currency of Democracy


Interestingly, in his article, Kindleberger claims that international monetary policies are analogous to peacekeepers. They need both multilateral and bilateral agreements, particularly in the balance between the United Nations Assembly and the Security Council. Kindleberger mobilizes several examples of this articulation between bilateralism and multilateralism, such as when the United States acted alone, but with the support of developing countries, against the British and French who had occupied the Suez Canal (in 1956). Another very interesting case is that of UNRRA (in 1945), that is, a situation in which the United States, having only one vote out of 17 members, had to provide aid to Belarus and Ukraine (Soviet states), despite of the USSR being among the donor and non-recipient countries of aid. The Stalinist USSR used the sovereignty of Ukraine and Belarus to obtain “American dollars”. This leads us directly to the current situation: while it is not known why an eventual and unlikely international currency (the Yuan) should be better than the dollar for poor countries, the effort should be to mobilize alongside the Ukrainian resistance and its sovereignty, as well as the constituent and radically democratic side that the dollar has. Ukrainians are fighting against the counterfeit currency of Russian imperialism, and at this moment the Chinese currency is on the side of this counterfeit.


Sanctions against the Russian aggressor do not weaken the dollar. On the contrary, with these sanctions and the mobilization of the Ukrainian resistance, the American dollar is reinforced and closes (or tries to close) the gaps opened in the period of uncertainty created by Donald Trump’s administration and George W. Bush’s wars. The strength of democracy is the basis of trust and, therefore, of currency.


For the “reign of the dollar” to end, some country or group of countries must be able to play the role of the United States, accepting to let capital flow freely and absorb imbalances in savings (or demand) in the rest of the world: “No other country before the United States played – even remotely – this role (…). (And this is) because no other currency has dominated international trade and capital flow in the way that the dollar does today”. To play this role, countries that would like to do so must undergo disruptive changes to their financial systems, through the destruction of domestic income, eliminating capital controls and thus damaging their exports. The answer to Lula’s question about “who decided” that the dollar is the global reserve is ironic, as pointed out by Michael Pettis: “it was the trade surpluses of Brazil and China”. Despite “what their leaders say, none of these countries is in a rush to turn the current system upside down” .


In other words: the dollar’s decline could happen because of the country’s internal political drift. If Donald Trump wins the next elections and – for example – keeps his promise to abandon Ukraine and even NATO, global trust in the United States will be strongly and lastingly damaged and this will have consequences for the American currency. But this will not be due to the sovereign decisions of Brazil, Argentina, or China, but to the internal political implosion of the United States. Still, the diminishing international role of the US dollar will not necessarily lead to a better situation for emerging countries and South Americans, but rather to a little more chaos. Eventually, Argentines won’t even have the dollar to run their shaky economy.


The support of the new and bizarre Argentine president (Javier Milei) for Ukraine is a contradiction within the scope of the new extreme right movement. Likewise, Lula’s pro-Russian stance is a contradiction for those who struggle in defense of democracy. In both cases, currency and democracy don’t converge in the search of the patterns of a new global governance, one able to institute its own languages and meanings.

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