Dominance of Dollar

Bharat Dogra

In certain historical circumstances the US dollar received the status of world reserve currency at the end of the Second World War. It is a very privileged and special position. It gives very sweeping control and benefits relating to international finance, payments, banking and trade. However with power comes responsibility and the USA certainly has a special responsibility to never misuse the special power of the dollar as world reserve currency to harm people of other countries.

Unfortunately the USA has been found wanting in this respect from time to time, particularly while using this special strength of the US dollar to increase the costs of the sweeping sanctions it has been imposing with increasing frequency. In the case of Iraq while very destructive weapons were used in two invasions, according to some estimates the number of lives lost as a result of very strong sanctions were even higher than the people directly killed by the terrible bombings.

While it is true that the sanctions were imposed by the UN Security Council, the USA was no doubt the main invader and also the main pusher of sanctions. The actual interception of sanctions was led by the Multinational Interception Force organised and led by the USA. The enforcing agency within the USA was the Office of Foreign Assets Control (OFAC). The OFAC went to the extent of imposing huge fines on those US or international organisations which were arranging medicines and other humanitarian aid for people of Iraq who had been devastated by invasion and sanctions.

Denis Halliday, highly experienced and respected UN humanitarian tasks co-ordinator with rank of Assistant Secretary General left his Iraq assignment saying that he cannot administer a programme that satisfies the definition of a genocide. His successor Hans von Sponeck also resigned. A 1999 UNICEF report said about half a million Iraqi children had died due to the impact of sanctions. After the 2003 invasion a lot of efforts were made to discredit the data on highly adverse impacts of sanctions, but a lot of evidence is available to show that the sanctions and invasion combined together had a truly catastrophic impact on the people of Iraq.

Cuba is another country whose people had to suffer a lot due to US sanctions. Generally socialist countries, or those with a socialist past, are the ones which have suffered more from US sanctions, a record that continues right up to this day, or else those countries which dared to oppose some important aspect of US domination, including currency domination.

Such misuse and other developments have led to questions being raised regarding the special position of the US dollar. Valery Giscard d'Estang, Finance Minister of France said in 1965 that the US dollar's prominence in global finance is an "exorbitant privilege". A few years later, in 1971, Richard Nixon made a unilateral declaration that the USA is not obliged any more to provide gold in exchange of dollar. This one-sided de-linking from gold, without due international consultation, led a scholar Susan Strange to observe, that now it is a situation of 'super exorbitant privilege'.

In an interview Nobel Laureate USA economist Paul Samuelson told People's Daily online on December 26 2005 (interview with Yong Tang), a time when the US dollar was regaining strength, "In the short run the dollar appreciates relative to the Euro and Yen. That can last for as long as these countries recycle eagerly their trade surpluses with the US into holding dollar assets (such as low-yielding American treasury bonds). Be not misled. So strong and irreversible are American balance of payment deficits, we must accept that at some future date there will be a run against dollar. Probably the kind of disorderly run that precipitates a global financial crisis."

Samuelson also said that the situation is being worsened by a less than responsible use by the USA of its privileged position. He told the interviewer, "President Bush is a reckless economist leading a reckless crew of subordinates. Spending on a hopeless imperialist caper in Iraq plus Bush giving away to the rich much of America’s tax base, will eventually depreciate the American dollar. Those now abroad who hold dollar assets will then reap the capital losses that they are not now expecting."

Thus a very eminent economist is telling that the special privilege has been used by the USA to get involved in invasions as well to give undue concessions to the super rich, thereby increasing inequalities. As several studies are available to show that ever-increasing inequalities have been associated with increasing difficulties of ordinary people, particularly the poor, it is clear that the US authorities have been using their special privilege in ways which harm the world as well as the ordinary people of the USA.

Recently there have been statements by US officials that the US sanctions against Russia are also intended to harm other countries which have close relations with Russia. Isn’t this a clear example of irresponsible use of a privilege? Earlier Iran was the target of US anger and sanctions. This despite the fact that its regime had cooperated regarding controls on its nuclear programme and an agreement had been reached and international experts as well as European partners of the agreement were satisfied that the agreement was being honoured. Hence Iran had to suffer several economic problems for no fault really and in addition an effort to curb nuclear arms proliferation which was succeeding well at one time was also unduly frustrated.
There has been much discussion in recent times and several experts as well as media reports have declared that the special position of dollar as world reserve currency has to continue as the currency of no other country can have the same acceptance as the US dollar. However there are others who believe that the idea of any single nation’s currency becoming the world currency needs to be replaced by some very creative, alternative concept of truly international currency which can help to promote justice based world economic order.

There has been a lot of hush-hush talk that those regimes which were keen to move away from their oil or gas exports being denominated in US dollar were punished in very cruel ways. There is thus a clear need to resolve the currency issue in such a way that special privileges and super privileges are either avoided or at least the misuse of such privileges to harm the people of other countries is avoided.

[The writer is Honorary Convener, Campaign to Protect Earth Now. His recent books include Planet in Peril, Man over Machine and India’s Quest for Sustainable Farming and Healthy Food.]

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Frontier
Vol 54, No. 43, April 24 - 30, 2022