The Dollar at The End of History
The comments below are an edited and abridged synopsis of an article by Philip Pilkington
In February 2022, in response to Russia’s invasion of Ukraine, the US government and its allies froze Russian foreign exchange reserves. In doing so, the US started a chain reaction of events that may result in the end of US dollar dominance in the world economy.
By seizing Russian foreign exchange reserves, the US signaled to the world that US dollar reserves were only safe insofar as a country’s foreign policy was not disapproved of by the US. Countries realized that holding dollar reserves and assets now came with serious risks and started to look for alternatives. Soon thereafter discussions started about the creation of a BRICS currency.
The dollar decline is now impossible to ignore. Even US Treasury Secretary Janet Yellen says we should expect a gradual decline in the dollar’s share of global reserves. The response from those who want to assume dollar dominance moving into the future has been interesting. They portray the dollar as historically unique and the dollar-based global system as being a sort of “end of financial history.”
Pilkington wonders why other countries send goods and services to the US and other western countries in return for what amounts to worthless paper. Dollar dominance only remains in place if other countries play along.
Dollar hegemony has been waning since 2009 and will continue to do so. Other countries will feel their way around for what works and what does not. Eventually a new equilibrium will be reached where the dollar is one among many global trading currencies.
This means that western countries need to get their house in order immediately. A serious industrial policy is needed, and the only option is to rebuild. The West no longer has control over the global economic situation. We only have true control over our domestic affairs and must rebuild our manufacturing bases.