In recent years observers in many different countries have been warning ever more insistently about the inevitable collapse of the dollar – which Washington has inflated far above its true value. The US has experienced nine recessions since the beginning of the 1970s, and the dollar has fallen twice in real terms, from 1972-1974, and from 1994-1995. The main international currency remains overvalued and public confidence in the dollar is likely to be hit by a double blow in the near future as the US faces the likelihood of a serious recession and high inflation rates. Distrust of the dollar is growing in many countries as a result of the US policy of using its currency as a weapon against “disloyal” leaders.
Many economists are now predicting a fall in the dollar’s value in 2023, which would cause financial commotion worldwide and encourage people to invest in outlier currencies, which would consequently increase in value this year.
The dollar’s loss of influence in global markets is clearly demonstrated by recent developments in the energy sector. In the last few years China, now the world’s second largest economy, has increasingly been purchasing oil and gas from Russia, Iran, Venezuela and a number of African countries, and paying in yuan – thus bringing the world closer to dropping the dollar altogether. In view of this trend, the Chinese leader Xi Jinping’s announcement in December that he is ready to pay for oil and gas from Persian Gulf nations in Chinese yuan naturally attracted a great deal of comment. Beijing has announced that over the next three to five years it will significantly increase its oil imports from the Gulf Cooperation Council countries and also develop comprehensive energy agreements with countries in the region, which may include cooperation on hydrocarbon exploration and extraction, as well as investing in oil refineries and petrochemical facilities.
China’s petrochemicals policy is of particular concern for the USA, since Russia, Iran and Venezuela account for about 40% of OPEC’s oil reserves, and China already buys oil from these countries. The Gulf Cooperation Council countries account for another 40% of OPEC’s reserves, while countries in China’s and Russia’s zones of influence account for the remaining 20%. China’s plan to start using the yuan for payments has therefore caused considerable concern in the USA, as it will significantly weaken the dominant position of the dollar and of the USA as a whole at a global level, and also lead to radical changes in the global energy market, which Washington is trying to control since the Second World War.
With a view to strengthening the position of the yuan vis a vis the US dollar, China has already made the Chinese currency convertible into gold on Chinese gold exchanges. Along with the trade in the petroyuan, this will make the yuan a more attractive reserve currency option than the dollar, and provide economic and financial benefits for politicians and investors alike. In these conditions foreign purchasers are losing interest in US treasury bonds, which is speeding up the process of “de-dollarization” all over the world. Already now there are clear indications that Japan and China, the main holders of US treasury bonds in Washington, are reducing their dependence on the dollar.
But it is not just the Persian Gulf states that are taking steps to drop the dollar. As reported by Al-Monitor on December 26, Iraq’s Central Bank has already drawn up a plan for reducing the Iraqi dinar’s dependence on the US dollar, and aims to buy Chinese yuan in order to increase the value of the dinar. Other central banks in the Middle East are also showing increased interest in the Chinese yuan. In August last year Egypt decided to issue bonds denominated in yuan. In April, the Bank of Israel added Chinese yuan to its reserves.
Russia and India have also agreed in principle to stop using the dollar for mutual trade settlements, and will start paying in their national currencies. The Russian President Vladimir Putin has accused the USA and the West of discrediting the dollar and other reserve currencies by “helping itself” to the national reserves of Russia, Iraq, Iran, Venezuela, Afghanistan and many other countries. Taking advantage of the crisis in Ukraine, the USA and its allies in the West are using illegal sanctions and tightening their dollar-related policies, thus threatening the future of the world’s financial system in a bid to set up a new economic order. Moscow has responded by taking measures to protect the ruble, requiring purchasers to pay for Russian oil and gas in rubles, threatening, if necessary, to cut oil production, and refusing to accept any caps on oil prices.
However, by its actions against Russia the West has damaged global confidence not only in itself, but in the dollar. It is therefore not surprising that the ruble, along with other currencies of Russia’s “friendly” states, is increasingly being used for payments made to and received by Russia, with more than half of such payments now being made in these currencies. Moreover, according to official statistics, prices in Russia have scarcely changed since May 2022, and since the beginning of 2022 the Russian ruble has been one of the strongest currencies in the world. The Bulgarian newspaper Fakti, among others, has supported this view, pointing out that, unlike the US dollar, the ruble is backed up by gold, oil and gas.
In recent months, even US media have increasingly accused their government of resorting to aggressive and arrogant methods to ensure the US dollar retains its dominant status. In a natural response to Washington’s aggressive tactics, many countries, having lost confidence in the dollar, are now building up gold reserves rather than relying on dollars. The proportion of dollars in central bank reserves has fallen from 65% at the end of 2016 to 59% in 2022.
Significantly, Turkey and Egypt, both key allies of the US (although its relations with them have significantly deteriorated over the last decade) have decided not to link their central bank reserves with the currency of any one country. According to Hassan Abdullah, head of Egypt’s Central Bank, the country has recently began working on a new index to support the Egyptian pound, to avoid the need to link its value to the US dollar.
Since the end of the Second World War, the only conflict between the main world powers which has really had an effect on investors has been the Cold War, which ended with the establishment of a unipolar world order dominated by the United States. Globalism was the dominant economic ideology and the US dollar was the currency of choice. But now geopolitics have again emerged as a potent force and the current world order is facing a serious threat. For perhaps the first time in its history the United States is facing an equal, and, in some respects, superior rival in the form of China, which is trying, with the support of Russia, to establish a new world order. These two countries are bringing into being a new form of globalism, using instruments such as China’s Belt and Road Initiative, BRICS+ and the Shanghai Cooperation Organisation, and in 2023 this multipolar world view is increasingly becoming dominant.
Given the current environment, the rejection of the US dollar represents the single biggest economic threat to the USA’s national security. It threatens to trigger a huge decline in the US economy, causing a dramatic reduction in consumer spending and wealth nationwide.
It has now become clear to observers all over the world that the heyday of US might is over. And the sooner the US understands this, the easier it will be for it to renew its economy and restore its political prestige.
Vladimir Danilov, political commentator, exclusively for the online magazine “New Eastern Outlook.”