Dollar Hegemony: 1944 - 2023

After the Bretton Woods conference in 1944, the US dollar became the global reserve currency. Soon after, the United States built an airfield in Dhahran, and in exchange, Saudi Arabia provided business and military training to the US. This mutually beneficial agreement led Saudi Arabia to start accepting US dollars as payment for liquefied natural gas (LNG), which subsequently influenced other oil-exporting countries to do the same. However, it was not until several decades later that the "petrodollar" was officially established.

In 1971, the global capitalist economy faced a particularly acute crisis. The United States was experiencing stagflation, and many countries began to view the US dollar as an unreliable currency, leading them to demand to redeem their dollars for gold. This sudden demand for gold threatened the US gold reserves. In response, President Richard Nixon took the dollar off the gold standard. This decision had a significant negative impact on the economies of oil-exporting countries, as the exchange value of the US dollar plummeted. On the other hand, it benefited the US economy by making its exports more competitive. Oil revenues decreased in line with the falling dollar, while the cost of imports for oil-exporting countries increased in currencies other than the dollar.

After abandoning the gold standard, the United States needed to establish a new system to back the value of the US dollar. In 1973, President Nixon and his advisor Henry Kissinger decided to tie the value of the US dollar to oil, creating what became known as the US petrodollar. However, in the same year, Nixon requested military aid for Israel during the Yom Kippur War, which led the Organization of the Petroleum Exporting Countries (OPEC) to respond with an oil embargo. OPEC stopped exporting oil to the US and other allies of Israel, causing the price of oil to increase by 70 percent during the embargo. Although the embargo eventually ended, oil prices continued to rise, and the US petrodollar remained strong.

For over 50 years, the US dollar has been the dominant global currency, but all empires ultimately decline. Now, it seems highly unlikely that the petrodollar will last as the world moves toward multipolarity. Ironically, the response of NATO member states to Russia's special military operation in Ukraine has hastened the decline of the US-led unipolar world order. The sanctions imposed on Russia have had significant unintended consequences for the West, with Europe being hit the hardest. As a result, Russia has been forced to increase trade with less hostile economies.

What Might Replace The US Dollar?

It has become increasingly clear that relying on the US dollar as a global currency is no longer sustainable or realistic. BRICS nations have started trading in their own national currencies, moving away from the dominance of the US dollar. Before the beginning of the Russian special military operation (SMO) in Ukraine, the Chinese yuan was hardly traded on the Russian market. However, on April 3rd of this year, the Chinese yuan overtook the US dollar as the most-traded foreign currency in Russia, as US-led sanctions on Russia pushed the country to increase trade with China. Furthermore, on March 28th, China completed its first yuan-settled LNG trade by purchasing liquefied natural gas from the United Arab Emirates, posing a significant threat to the US petrodollar. The Chinese yuan is not the only currency that is beginning to replace the US dollar in international trade. On April 1st, India and Malaysia agreed to trade in rupees. These developments indicate that Washington and Wall Street can no longer afford to ignore the fact that the dollar's days as the dominant global currency are numbered.

When the US dollar loses its global dominance, the massive national debt of the United States will have a significant impact on regular Americans. The US oligarchy is aware of the potential chaos that could be caused if there is no replacement for the dollar available to the working class, which would pose a direct threat to their class interests. Some experts believe that a Central Bank Digital Currency (CBDC) could be a potential replacement for the US dollar, citing the recent announcement of the Federal Reserve's electronic payments system, FedNow. While some "fact-checkers" deny that FedNow will replace the US dollar, the Fed governor has stated that while it's not a CBDC, it could offer some of the same benefits. According to the Fed chair, a CBDC would require several years of evaluation before it could be widely adopted, unlike FedNow, which could be accessible to the public much more quickly.

Russian lawmaker Alexander Babakov has claimed that BRICS nations are currently collaborating on developing a new international trade currency that will not be linked to the US dollar or the euro. The currency will reportedly be backed by gold and other commodities, including rare earth metals, and will be unveiled at the upcoming BRICS leaders' summit. This new currency will offer developing countries, particularly those with substantial reserves of rare earth minerals, an attractive alternative to the US dollar and enable them to break free from the economic constraints imposed by western imperialism. With the increasing importance of lithium as the new oil, as seen in US news coverage of lithium-rich countries such as Bolivia and Mexico, BRICS is aware of this geopolitical and economic trend.

It is highly improbable for a single currency to take over the entire role left by the US dollar in the world economy after de-dollarization. Already, other national currencies have begun replacing the US dollar in international trade, and BRICS may soon have a new currency available to fill the void. As the rest of the world watches the US dollar's self-inflicted destruction, they will likely be wary of any currency managed by the Fed, whether digital or physical. More Americans may turn to cryptocurrency out of necessity once the US dollar loses its value, which could clash with the interests of a potential US-controlled CBDC or similar digitized payment system. The future of the US dollar and what will replace it is uncertain, but one thing is sure: US hegemony is on the brink of collapse.