The Russia-Ukraine war that erupted in February 2022 brought on its heels a US-led EU-embraced hysteria of sanctions against Russia. The world has been closely following how these sanctions have affected global economic balances over which the US dollar and the euro held sway. A glimpse at the aftermath of the war on strategic levels and away from military battles, suggests the birth of a new global economic system that would be independent of the US dollar and the euro. The new economic system began with an alliance between China and Russia to adopt the Chinese yuan as an alternative currency to the dollar in global trade. BRICS countries—Brazil, Russia, India, China, and South Africa—decided to join the new system, and this led to the possibility of other countries such as Saudi Arabia and Egypt joining BRICS. Countries belonging to this group are considering launching a common currency to replace the US dollar in their trade dealings.
These developments will surely generate heated, if not nervous and hysterical, responses from the US and EU who are both bound to defend the hegemony of their currencies over global economy. The world is holding its breath in anticipation of the fallout; it is self-evident that neither the US nor the EU would take kindly to their currencies being ousted from dominion over world economies. It is expected that the superpowers would resort to all political, economic, and military means if needs be, to maintain the sway of their currencies and to prevent any rival currency from having any share in dominating this front. But the bitter truth which the US and its European minions know full well is that their brutal policies on the international stage and their miscalculations in fuelling conflicts are what led to the urgent need for an alternative to the dollar and euro. So now we see the features of the new global system and currency shaping up, threatening the throne of the US dollar followed by the euro.
We must note, however, that the reckless policies of the US administration in fuelling conflicts around the world have not been the sole reason behind the loss of worth and might of the US dollar. Over more than half a century, the US has gambled with the value of the dollar and the assets that support it in a way that has enfeebled it before other economic powers that were rebellious against its hegemony, and looking for a substitute that would save them from its throes. So, what is the story of the US dollar?
The Bretton Woods Agreement was concluded in 1944 in the wake of WWII, by the will of the victorious countries. Under the Bretton Woods System, gold was the basis for the US dollar, and other currencies were pegged to the US dollar’s value. The US pledged to the countries of the world that it possesses a cover of gold equivalent to the dollars it possesses.
According to the Agreement, and as guaranteed by the US Central Bank, US dollars were convertible to gold at the fixed exchange rate of USD35 an ounce. The US dollar thus gained international confidence because it was guaranteed by a gold cover. Accordingly, countries of the world worked on gathering the largest possible amounts of dollars in their vaults, relying on the fact that at any point in time they could exchange them for gold. The situation remained as such, until in the early 1970s when President Richard Nixon shocked the world with his announcement that the US would no longer exchange gold for US currency. It was discovered then that the US was printing dollars without gold cover. This meant that the US possessed wealths around the world against the dollar it was printing which in truth had no real value since they had no gold cover to back them. At the time President Nixon announced floating the US dollar, leaving its value to be determined according to supply and demand, and relying on the reputation of the US and its economic strength.
At the time, no country was able to object to or protest against the new monetary system the US had announced; objection would have simply meant that all the billions of dollars kept in banks would become worthless, which would have been disastrous. What became known internationally as the Nixon Shock was subject to countless studies and research, but remained eclipsed from peoples. At the time, US Secretary of State Henry Kissinger went to Saudi Arabia asking it to sell its oil in dollars, which Saudi Arabia agreed to do. This is when President Nixon uttered his famous words to the effect that the US must play the game as it made it, and others must play it according to the rules set by the US. To date, the system runs in the same way: the US prints as many dollars as it wishes, and uses them to buy its needs of raw material and goods from the entire world. Russian President Vladimir Putin described this by saying: “The US is stealing the world”. Will we witness a new dawn of another currency pulling the rug from under the US dollar?
Watani International
28 April 2023