The Geopolitics of the Dollar

Image: Elyeser Szturm

By Roberto Regensteiner*

The volatility in quotations between currencies and commodity prices will increase, impacting the financial markets, causing other exchange rate crises, large shifts in economic values, an increase in commercial aggressiveness and political and military frictions.

National Currencies as instruments of the economic dispute

“Weaponizing the dollar” was the title of a article by Patrick Lawrence,[I] who reported what happened at the G20 meeting, in Osaka, in June 2019. In that context, two practical measures were announced towards the de-dollarization of international trade, which characterized the most incisive challenge to the dominance of the dollar over international trade:

Germany, France and the United Kingdom announced that Instex[ii] would be operational. It is a joint venture of the three countries through which it could trade with Iran, safe from US sanctions and without the mediation of the dollar.[iii].

At the same event, the hard core of the BRICS formed by Russia, China and India announced a new International Payment System in which the dollar and American banking institutions and credit card operators that are part of SWIFT are left out.[iv]. This new payment system will support BRICS and third country trade.

These announcements indicate situations in which the US monetary hegemony, established at the end of World War II, is being increasingly challenged internationally, in an attempt to make the US a relatively less powerful actor. The US has been reacting to this with the use of extra-economic resources, increasing instability and unpredictability. Economic disputes, which previously seemed to be contained and resolved in comprehensive multilateral institutions, increasingly extrapolate the limits of diplomacy and increase the risk that they will be transformed into open crises of ever-increasing proportions.

The coming crisis

That is why it is convenient to listen to what Nouriel Roubini says in the article “Anatomy of the Approaching Recession”[v], published in August 2019. He is an author worthy of attention for his success in predicting the sub-prime financial crisis (speculation with US residential mortgage bonds, 2007-8). He is also co-author of a book on economic crises and the future of finance published after[vi].

Of Turkish origin, educated in Italy and in the USA, where he lives and teaches, he circulates internationally as a speaker in forums frequented by the media, academia, high levels of bureaucracy, government, multinational bodies and in interviews for financial means (Bloomberg, Financial Times, Project-Syndicate, frequent twitterer).

In the aforementioned article Roubini tries to dissect the crisis before it explodes. He warns that economic policy mechanisms (concentrated on Quantitative Easing and reduction of interest rates), dominant today, are remedies for past crises, and innocuous for the future problems that lie ahead. There he identifies as possible triggers for the next global recession, which could reduce aggregate demand: the escalation of the US technology war against China (artificial intelligence, robotics, 5G, etc); the trade and currency wars and the supply of oil. With these colors he paints a scenario of “stagflation” (stagnation with inflation, a term coined in the 1970s) for which new remedies will be needed, such as fiscal policy, which he does not go into further. Since half a concept is enough for a good economist, it can be deduced that he is referring to the need for an international structure of taxes and expenditures for whose proposals the establishment has been refractory[vii].

In short, Roubini is a scholar with a practical spirit: consultant, professor, interlocutor of official organizations and corporations, an organic intellectual of a fraction of world capitalism that defends the health of the financial system. He was one of the few who warned about the sub-prime crisis. Now he warns that another crisis is approaching.

recent events

At least two geopolitical events stand out between the end of 2019 and the beginning of 2020 directly related to the subjects dealt with here:

(a) The US-China agreement (Phase 1) signed at the White House on December 13, 2019 was presented by President Trump as a great asset for the November 2020 presidential elections. he was starting a process of impeachment by Congress and represented a notable turning point after six months of rhetoric and an aggressive policy against China. For this reason, the agreement resembles a truce that produced a lull that should last until the elections. After that, referrals are unpredictable; It is

(b) The assassination of the Iranian ruler, General Soleimani, on January 3, 2020, at the behest of Trump, extrapolating all the limits of diplomacy in times of peace. In addition to the anti-terrorist rhetoric employed by Trump, there is an attempt to regain a decisive role in relations with Iraq that Instex was demoralizing[viii].

Immediate prospects

The election of Trump as president of the USA, starting in 2017, began a period in which controversies that, until then, were more or less restricted to diplomacy, are now tweeted and involve an increasing number of people. All of this contributes to an environment in which aggressiveness grows and the use of resources expands beyond the scope of legitimate economic competition and the diplomatic resolution of conflicts.

Among the topics tweeted is the systematic pressure to reduce interest rates practiced by the FED through which it is thought to reduce the dollar exchange rate, favoring exports and the level of employment, bitterly criticized by Roubini.

There is an exacerbation of US policy and legislation that requires companies that have headquarters or branches in the US to refrain from selling to countries or institutions that are subject to restrictions by the government of that country, as is the case in Iran. Anyone who fails to comply with the dictates of the established policy will suffer sanctions, such as impediments to trading in the large North American market for goods, capital and port services, financial resources may be frozen and so on.

The appeal to this type of resource, which has been used for decades, has been intensifying. It was applied against Huawei – a Chinese company at the forefront of wireless telecommunications technology (5G). In December 2018, Canada arrested the company's chief financial officer (and daughter of its chairman and largest shareholder) at the request of the US. The arsenal and the field of action are vast, now added to the use of missiles against enemy rulers, generating a climate that causes apprehension.

What will happen in the next few months will be due, on the one hand, to how the winds of the presidential campaign will blow, in which Trump needs assets to defend himself against the accusations that led to the impeachment process and wave to the electorate with promises and achievements. There may be surprises like the missile targeting Soleimani.

On the other hand, Trump is not alone on the board. There are limits to a globalized and interdependent reality, as the case of Huawei itself illustrates. After trying to boycott this company, the US government had to back down at the request of US companies and other allies, either because Huawei is an important customer (of Google, among other big ones), or because it has become a strategic supplier to systems operators telephony.

Bretton Woods Accords

The announcements made at the G-20 are part of a long chain of economic and financial events that began even before the end of the Second World War, with the establishment of the Bretton Woods Agreements (ABWs), in 1944.

They were anchored on the guarantee offered by the US that they would convert 35 USD per ounce (31,1034768 grams) of gold. This was the clause by which the other signatories accepted the central role of the US currency in the world economy and in relation to which they agreed on coordination rules to keep variations in the quotation of their respective currencies against the dollar within certain margins, using predefined practices.

It was believed that, in this way, exchange rate crises could be avoided: spirals of devaluation in exchange rates, control of reserves and a menu of protectionist measures[ix] that appeared in the period prior to the Second World War, when there was a great intensification of commercial and economic conflicts.

The ABWs instituted a new architecture for the international financial system that included the creation of new economic institutions (IMF, World Bank, as credit and financing instruments) through which the USA, the new world power, exercised its hegemony. The USSR declined to sign the ABWs on the grounds that such institutions would be Wall Street affiliates.[X].

Over the decades the US abused the right to print dollars to finance its spending and investments. These abuses gave rise to ever more intense pressure from the partners to carry out the exchange of dollars for gold established in the ABWs, configuring an unsustainable situation since there would not be enough gold to meet the charges.[xi].

On August 15, 1971, President Nixon revoked the dollar parity clause, which now floated against gold. He thus economically benefited the US with seigniorage revenues (difference in the face value of paper money and its cost of production), inflationary profits and in other ways, symmetrically causing losses to third parties.[xii] who subscribed to it. By taking this measure, Nixon set fire to the fuse of a time bomb whose destructive charge was gradually being strengthened by the evolution of events, causing instability in the markets and increasing the importance of the IMF and other international organizations within which the contradictory interests[xiii] are becoming evident.

Created with the explicit mission of preventing the vicious cycles of pre-war spirals from recurring again, the IMF began to act more and more resourcefully, making itself present in the problem countries with recommendations to those who did not “behave” as expected. good economic theories, auditing corrective measures, signaling to other creditors the attitude they should take or the consequences they would suffer. Little or nothing was openly discussed about the great damage done by Nixon to the international community.

The euro, the BRICS and other reactions

This background contextualizes the adaptation efforts of several countries. Some have renounced their monetary autonomy by submitting to the dollar, such as Ecuador and Panama[xiv] that, among others, adopted it as national currency or fixed the quotation of their currencies on it.

European countries pursued a different strategy. Through a masterpiece of institutional engineering, over decades and in various stages, they created the euro, the European currency, which from 2002 began to circulate in an ever-increasing number of countries and, in 20 years, began to to be internationally considered one of the reserve currencies by central banks for the purpose of settling international transactions, one of the few to enjoy this privilege.

Another recurrent form of reaction was the direct multilateral exchanges between countries, without the intervention of the dollar and with varied results over time, such as the aforementioned Instex, among other experiments.[xv].

The constitution of the BRICS (Brazil, Russia, India and China, to which S of South Africa was later added) in 2009 can also be understood largely from the perspective of defending specific economic interests opposed to the dollar and the economic hegemony of the USA.

Since the beginning of this union, its participants affirmed the need for a new global currency and proposed to quote and transact goods and investments without the mediation of the dollar. In 2014 they created an investment bank (NDB) to finance projects and manage a reserve fund for contingencies. In the same way. At different times, this same possibility of excluding the dollar from Mercosur was raised without this coming to pass.

Final remarks

Actions to strengthen the IMF, the World Bank and the reinvigoration of the role of the BIS (Bank for International Settlements, in Basel, Switzerland, a forum for central banks that seeks to standardize and coordinate actions) were, for a long time, buffers against international economic problems.

However, the same “free market forces” that led to the exchange rate crises of the interwar period are now manifesting themselves again and provoking a variety of responses to international economic “imbalances”.

All in all the fact is that since 1944 the dollar has established itself as the dominant currency through the BW Accords. In 1971, the top US representative officially kicked off the parity ladder. From then on, currency crises spread by the dozens, to the point of becoming the object of statistical measurement, supervised by the IMF, an international organization specialized in the subject, mediator of conflicting interests of money holders in which the balance between voting power and the power of money biases in favor of the latter. Created to prevent the problem, it cannot prevent the disease from reappearing, revealing itself to be impotent to solve the problem by prescribing drugs that make the disease worse.

The economic processes that in the interwar period surfaced as a spiral of exchange rate crises that expressed asymmetries in international trade and unfolded in acute trade disputes, are now manifesting themselves again. It's not a repeat ipsis literalis, but similarly there is an extraordinary exacerbation of conflicts (between nations and social classes) over the appropriation of economic values.

The net result of these processes is that the defensive measures adopted individually by countries are spreading in search of protection against the extraction of economic value perpetrated by a financial system anchored in the dollar.

The market is becoming saturated with surplus dollars that are looking for profitable investments. The Federal Reserve interest rate drop held on July 31[xvi] operates in the same sense of making dollars surplus. The European Central Bank responded – pardon the pun – in kind[xvii] one month later. Trump decreed an increase in tariffs on imports of Chinese products that China partially neutralized with the devaluation of the yuan.

The trend towards an increase in old gold prices, resulting from the increase in purchase volumes, is related to these issues. The volatility in quotations between currencies and commodity prices will increase, impacting the financial markets, causing other currency crises, large shifts in economic values, an increase in commercial aggressiveness and political and military friction.

* Robert Regensteiner is a professor and consultant in Management & Information Technology.Not


[ii] INSTEX (Instrument in Support of Trade Exchanges): Since 2015, Western relations with Iran have been governed by a Joint Comprehensive Plan of Action (JCPOA), in which Germany participated , China, United States, France, United Kingdom, Russia) through which Ancient Persia agreed to submit to measures to control the development of its nuclear technology through a normalization of its commercial relations.

In May 2018, the US withdrew from the agreement and began to pressure other signatories to commercially block the country.

In addition to the production capacity of the uranium necessary for the manufacture of nuclear artifacts, Iran is one of the countries that faces the Strait of Hormuz, the entrance and exit door of the Persian Gulf, a kind of jugular vein through which more than 20% of international crude oil of which Iran is also one of the biggest exporters.

Since before the economic blockade of Cuba (1959), it is a historical fact that repeats itself, that the USA, in the exercise of its power, economically sanctions people, companies and countries that fail to comply with its government policy directives through the use of sanctions ranging from closure of borders and ports to the imposition of fines and the seizure of bank funds.

The mentioned article by Lawrence states that INSTEX is “the most important challenge to date to the hegemony of the dollar as a means of exchange and store of value”.


[iv]“BRICS countries, excluding South Africa, have their own domestic national payment systems – China has UnionPay, India developed RuPay and Brazil has ELO. In Russia, it is the Mir payment system, launched by the Central Bank of Russia in 2015, a year after Western sanctions against the country were introduced.” payment-system/

[v] The Anatomy of the Coming Recession, Aug 22, 2019, In Portuguese here:  

[vi]Roubini and Mihm, “Crisis economics: a crash course in the future of finance”. Penguin Books. 2010

[vii] Vpex. the Tobin tax proposal ( that has been floating around since 1972 .

[viii]“How Iran will respond to the American assassination of Maj. Gen. Qassim Suleimani remains a matter of speculation, but one outcome seems almost certain: the end of Europe's long effort to keep the 2015 Iranian nuclear deal alive” in “Suleimani is Gone, and the Iran Nuclear Deal May Be Next”

[ix] Eichengreen, B., Sachs, J.. Exchange Rates and Economic Recovery in the 1930s. The Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp. 925-946. p.928.

[X]“Soviet representatives attended the conference but later declined to ratify the final agreements, charging that the institutions they had created were “branches of Wall Street”.”

[xi] At least since 1965, De Gaulle, the French president, publicly voiced the issue (see and exchanged his dollars for Fort Knox gold.

[xii]Today the gold dollar quotation exceeds US$ 1.400, that is, a change of more than 4000% in this ratio.

[xiii] Kaminsky,G., Reinhart,C.. The twin crisis: the causes of banking and balance-of-payments problems. p.427. Table 1 summarizes a study with 76 currency crises in 26 countries in the period 1970-1995. Between 1970 and 1979 there is an average of 2,6 crises per year, which rises to 3,13 crises in the subsequent period 1980-95.

[xiv]“Even though officially Ecuador and Panama still have their own currencies (sucre and Panamanian balboa), both economies use and are delimited by the US dollar. The reasons that led countries to choose to use foreign money instead of the national currency are different. Ecuador due to the crisis, inflation and devaluation of the Sucre in the 1990s; Panama, on the other hand, due to the large movement of foreign currency in its economy. But the objective is the same: to contain inflationary pressures... Other smaller nations also adopt the dollar as their main currency: El Salvador, East Timor, Puerto Rico - which is a US territory -, British Virgin Islands, Micronesia, Turks and Caicos and Zimbabwe .” in,a260701c4014e310VgnVCM20000099cceb0aRCRD.html

[xv]Like eg. in the case of Brazil, the polonetas

[xvi] eg:,federal-reserve-corta-taxa-basica-de-juros-nos-estados-unidos,70002949364


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