Dollar privilege: everyone using the dollar for trade, and the US controlling the system that moves currency around the world is important. When it goes away, and it will in the next five years, I’d guess, the US will take a huge hit to its ability to command the world’s resources and will lose most of its ability to sanction anyone outside the US vassaldom area. (And the vassals will find it easier to leave if they choose.)
But to see the loss of dollar privilege as primary is a huge mistake. It’s downstream from the only thing that really matters: actual national capacity.
Industrial output, tech, secure resource availability (people, food, energy, rare earths, oil, uranium, etc.)
Fundamentally everything flows from having the most industry and the tech lead, combined with enough resources to make use of that industry and tech lead. Dollar privilege happened because after WWII the US controlled over 50% of the world’s manufacturing ability and was the most powerful non-Soviet state in the world. As such, in a cold war situation, it took charge and created a “free” world in the image it wanted. That certainly included controlling money and money flows, and if you wanted or needed anything you either had to get it from the US and over time its allies (Europe, Japan, South Korea, Taiwan) or from the USSR. When the USSR went away, the US was able to go hog-wild with sanctions, because there was not alternative to using their system and buying from them and their allies.
Now there is. Almost everything you want you can get from China, Russia or some nation outside the “West”. There are exceptions, but they are small in number and that number is decreasing every year. It won’t be long before China delivers satellites to orbit cheaper than the US and had domestic jets that don’t have to buy jet engines (one of those last things) from the West. And hey, virtually everything the Chinese sell is cheaper than if you buy it from the West.
But this is not just about civilian stuff. The fact is that China’s military tech is now more advanced than America’s in most areas. Better missiles. Better drones. Better jets. On top of that they have far more capacity to build ships and drones and missiles and weapons and ammunition than does the West.
Industry/tech (and the resources to use them)=military power. America had a tiny army before WWII, but was able to ramp up seemingly overnight because it had more industry than anyone else. There is zero possibility of America winning a conventional war against China. Zero. Cannot happen. The last chance of doing it was a “resource choke” but that can’t be done now because Russia isn’t going to cooperate. It required Russia as an ally.
To return to our initial point, dollar privilege is a lagging indicator. You get currency domination after you’ve already won, and you lose it after you’ve lost. Once you are no longer the world’s leading industrial and technological state you will lose it, the only question is when. America could have kept it for quite a long time if America’s leaders hadn’t abused it with constant sanctions because while currency privilege has advantages it’s also damaging to the actual productive economy of whoever has it and China is going to great lengths to avoid this.
But as it stands everyone with sense wants out, so the US will lose dollar privilege soon thru most of the world, without, if China can manage it, China creating Yuan privilege. America may retain it in relation to the usual vassals: the anglosphere, Japan, South Korea, Taiwan and Europe, but once the alternative exists (and the Chinese and Russians have and are building those alternatives) and has reached critical mass, one by one even the vassals will move to using other systems in addition to SWIFT and will make themselves largely sanctions proof.
This is another “last days of the American Empire” thing, and thank God. Dollar privilege has been used, literally, to kill many millions of people thru the world, and to impoverish hundreds of millions. It will be a great day for every non-American when it ends.
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Feral Finster
“But to see the loss of dollar privilege as primary is a huge mistake. It’s downstream from the only thing that really matters: actual national capacity.”
So why do people use Swiss francs for anything in trade or as a store of value? Switzerland is not exactly an industrial powerhouse.
Ian Welsh
Tech/industry/resources are the only thing that matters in the great power game, and Switzerland is never going to have the Swiss Franc be the world’s primary trading currency, store of value and have control of a world spanning financial system. Even at the height of its banking strength it didn’t have that, and back in the 90s the Americans forced the Swiss to violate banking secrecy.
In the new world they might get it back, if China doesn’t care that much.
Feral Finster
The CHF is still widely used in europe. If tech or industrial power was what made a currency, the franc would not even have what share it does.
And I haven’t started on the UK pound.
Ian Welsh
The pound has lost 75% of its value over the last 100 years (as measured by exchange rate, not by purchasing power.) We are talking about what it takes to be the world trade currency and have currency privilege, be the main reserve currency etc… Neither Britain nor Switzerland has any of that. You’re talking about something irrelevant to the post.
Ian Welsh
Like Britain after WWII, in about ten to fifteen years it won’t really matter all that much what America wants, and that would be true even w/o climate change. And the Brits were some of the most ruthless conquerors the world has ever seen, not a bunch of pansies.
The US no longer knows how to create actual value. It’s blowing its wad on stupidity, and hilariously China is going to win the AI race, such as it is.
Of course climate change is the joker in the deck. I’ve written plenty about that, including how it interfaces with the rise of China, and will write more in the future.
China’s position in dealing with is far stronger than it used to be even 10 years ago, because of Ukraine and Russia becoming its junior ally. That said, of course catastrophe is coming. Still, I’d rather be playing China’s hand when that happens than America’s.
No single article covers everything, the site must be read as a unified whole.
The first world area who is completely screwed are the Euros. Climate change will hit them like a truck, and they are way behind on tech and losing their industry fast.
spud
i live in the U.S.A., but had a lot of friends in canada due to business relations. when nafta was signed, a few of them were giddy and moved to the U.S.A, i warned them not to because i knew immediately the route the U.S. was going, and in the end, we would go bust, and canada and mexico would be invaded and annexed in sheer desperation because under free trade, free market economics, private debt from insane economic policies where bitcoin is considered a product, and economic bubbles are considered GDP.
they laughed. today most do not respond to me. i told them to stay put, and get ready to try to survive.
now they are stuck in places like florida, texas, california. all teetering police states, about to implode.
Mark Level
Hey Finster– You’re usually more on the ball than me, but not this time. The deal with Switzerland is the gnomes who live under Zurich, shuttling gold around. They have a train that moves all the sleazily obtained funds around underground. Henry Miller falsified this and claimed it existed in France, and that there is a Lake of Gold there. But Robert Shea’s Illuminatus Trilogy spilled the truth. The gnomes of Zurich control major amounts of gelt, during a couple of centuries.
Tax havens have a certain power, to state it more directly. Where will Zelensky and the other oligarchs get their income when it all collapses? We know.
Jan Wiklund
In the end the loss of the dollar privilege will be good for the Americans also (even if it will take some time). The dollar privilege has actually worked like an enormous “Dutch disease”. American production priced itself out from the market because the US got so much wealth from doing nothing.
It was like when Spain controlled the world silver trade, which made all other Spanish production unprofitable in comparison.
When the Spanish lost their silver monopoly they became dirt poor. But they recovered because it got profitable again to produce real things. I guess it will happen the same thing to the Americans. And US is big enough to put together an efficient production system – if they want to. And that would have a very good effect on the US society.
Bob
Once the US ends then we’re all under the Chinese boot. Old boss, New boss laaalaaalaaa. The destruction of the natural world continues apace, the tragedy of an evolutionary process that leads to deranged monkeys with tech contiues.
Purple Library Guy
@spud . . . The US may in desperation invade and TRY to annex Canada. But they will not, in fact, annex Canada. They will get bogged down in an insurgency in a country far bigger than any of their previous failed counter-insurgency campaigns, an insurgency some of whose action takes place IN THE UNITED STATES because all we have to do is walk south and do some damage, and then after a while they will go home. And then they will have an enemy on their northern border instead of a gullible friend and flunky.
I doubt they can pull off Mexico either.
elkern
I suspect that the end of ‘Dollar Privilege’ will hit the USA particularly hard, because we aren’t really a ‘nation’ in the ethnic sense (except in the minds of a crazy – but loud – minority). (IMO, this is largely why the USA is the only developed country without a National Health system).
The USA – always a ‘nation of immigrants’ – has often struggled with social cohesion, and has only succeeded by, essentially, bribing everyone with [relative] prosperity. Sure, White Americans have always had more money than others, but even Black Americans usually (post-slavery, or at least post Jim Crow) were able to feel that each generation would be more prosperous than the last.
In a way, the only thing that Americans have ever had in common was a shared faith in generational progress. That faith is already strained; the Rich won the Class War and are now hoarding all new wealth. The vast majority of young Americans already face a tougher and poorer life than recent generations.
The USA’s Real Economy – making Things and Stuff – has already been hollowed out by Financialization, to the point where stagflation is already underway. As Ian points out, this is exactly why the Dollar will collapse, soon(ish?); and the factors causing that impending collapse are already causing Stagflation in the USA. When the Dollar Bubble (eventually?) pops, inflation will soar (we depend on lotsa foreign goods, and they will *all* suddenly get much more expensive).
Unlike Britain, the USA still has vast Natural Resources, so we still have the foundation of a good Real Economy. We have plenty of good farmland, energy sources (renewable and otherwise), and mountains that haven’t been mined yet.
OTOH, unlike England, we don’t really have any social basis for cohesion. We *could* choose to retrench, to build the infrastructure for a decent 21st century Real Economy, but sadly, we’re just as likely to waste whatever we have left on a vicious Race War, or something like it (Urban/Rural war?).
spud
Purple Library Guy,
i agree. but if you want to know whats on the minds of these fascist oligarchs, you have to think like one.
they view the the elderly, the weak, the disabled, children, the homeless and unemployed etc. not as productive citizens if given the right chance and support, and without support they are the victims of free trade/free market capitalism.
they view them as criminals, that take from the state.
and of course they are the state. so they have driven themselves and the country so far in debt without the ability to make much of anything, those debts are UN-payable. and we will not get much production back.
so as you see, the first people who are your assets, are blamed and must pay a price.
when it becomes apparent even to the average person on the outside that government employees, immigrants, and all of the above are not responsible for the mess that the fascist capitalists made.
the fascists will panic and go after what they consider the weakest state, to get the others to fall inline, and allow their countries to be looted.
if the russians and chinese do not understand what FDR understood before WWII, that the fascists oligarchs have no neutral, no reverse, only full speed ahead with no brakes, they will have armed venezuela to the teeth, that will make it so expensive, so embarrassing that the fascists will have to look to others for looting.
i think the reason why greenland was cited first is, it is a relatively easy cheap target.
but also its mineral wealth is undeveloped without any infrastructure at all, and will require untold billions to develop, and maybe a decade or more to come online.
the fascists need that money now. see the ukraine.
so who close by has the infrastructure and developed minerals. canada and mexico.
do i think that will fail? YES!
so FDR understood that once the fascist and imperialists were done with their neighbors, we would be next, and he was right.
so should russia, china, iran etc. feel safe once their borders have been secured from outside interference, NOPE! if they do, they are fools.
we watched russia and iran ignore syria, how did that work out for them!
so fascism never sleeps, never rests, the fascists know when and where to move next, once they have driven themselves even further into debt, with even less chance to make anything of value, they will do exactly what FDR knew they would do.
so either we get de-nazified, and a complete collapse which everyone is hoping for, watch out what you wish for, it could get worse, only outside forces can de-nazify us.
spud
if you want to know the real value of the american economy. stock, commodity and real estate etc. markets, you have to look at pre 1993 levels.
since 1993 almost all real wealth production was free traded away. what was left was so severely financialized, that the private sector is essentially bankrupt.
so the markets are so severely over valued, that their fall might not be reversed. and the american economy might be worth well under 10 trillion dollars.
the dow was in the 3000’s. the S&P 500 was approximately 454.71, In 1993, the Nasdaq Composite index had a closing value of approximately 676.95.
there is the real value,
Altandmain
I agree with most of this post, except for one point at the end, the Chinese don’t want Yuan as the reserve currency because that would make the Yuan stronger and make Chinese manufacturing exports less competitive. So they would be open to a BRICS system.
At some point, the current liberal system is going to get discredited to the point where the vassal states will have to seek their own path separate from the US and the US will have declined to the point where it is no longer able to enforce its will, even on its vassal states.
Ian Welsh
I didn’t say the Yuan would take over. It’ll be something BRICS or just using national currencies, which is entirely do-able. You don’t /need/ a reserve currency to run trade. It makes some things easier, but it also has huge downsides for everyone, including, as you point out, for the issuer of the reserve currency.
The CPC is well aware of this, again, as you note.
The EU needs to either become a real country, or it needs to get rid of the Euro, too. Stupidest thing the EU ever did was creating the Euro, which is saying something.
Altandmain
@Ian
The Euro was always designed with the goal of undermining the general public of Europe. It was a neoliberal project at heart, and sold to the people because it would reduce foreign exchange costs. Of course the “cure” was far worse than the poison.
As for reserve currency, it seems that a BRICS currency is the best option. There are going to be differences. China for example wants to keep its manufacturing leadership, while a nation like India is desperately trying to industrialize, but is struggling to do so because it has a bunch of oligarchs in charge and doesn’t understand the true reasons for China’s growth, which it mistakenly thinks is because of Western foreign investment.
Europe, if anything is getting more divided, so that becoming a nation will be far more challenging. It will get even worse as Europe continues to lose industry.