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US Dollar's Reserve Currency Status -- History and Future
As the dedollarization movement accelerates, let's look at the fascinating past and the complex future in a multipolar world
Americans act as if the US dollar has always been the king of the currencies. However, just 105 years ago, the share of the US dollar in the global foreign exchange reserves was… ZERO! Nada! Zilch! Moreover, the dollar didn’t become #1 until 1954. Let’s take a look at the history of the top global currencies since the beginning of the 20th century. There are lots of insights, including valuable lessons of Europe, which seems so clueless.
Let’s look at the history in the following periods:
From 1900-1918, the three main global currencies were those of Britain, Germany and France. The British Pound had the lion’s share. The market shares were directly related to the extent and wealth of the colonies that these European powers controlled and exploited.
Until 1918, the US Dollar was a nobody since it did not have a global presence. It had neo-colonies in Central/South America and it had just colonized the Philippines. America was an aspiring colonialist in 1900 and faced formidable obstacles.
However, the US dollar’s fortune changed in 1918!
What happened in 1918? Oh, yeah, the end of WW1 after which Europe lay in ruins. Thus, the USD began to rise in prominence. See chart below:
Then the US stock market crashed in 1929 and the Great Depression began. Thus, the USD's share in global currency reserves began to decline.
But once again, dollar’s luck reversed remarkably in 1944. Why?
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Having learned nothing from WW1, Europeans destroyed themselves once again in WW2. (And now they are doing the mistake one more time by waging a proxy war against Russia on behalf of the USA and globalists. Stupid is as stupid does — Forrest Gump).
Okay, back to 1944 when the UK, France and others were in the US, planning a new world order. The US had just launched a successful invasion of Hitler-controlled France (D-Day on June 6, 1944). Thus, the US had all the power in negotiations as the savior of Europe.
Taking advantage of the situation, the US proposed King Dollar in 1944 at the Bretton Woods Conference. Meekly, Europe agreed to this subjugation. Preeminent economist Keynes had proposed a country-neutral global currency for trade and reserves. It would have been the most democratic and fair, but the USA wanted to be the Empire.
This was the birth of the US dollar as the world’s reserve currency.
However, it took another decade for the dollar to surpass the British Sterling and become the King Dollar in 1954.
As for the British Pound, its fate was directly related to the fate of the British Empire. The Sterling’s share reached an astonishing peak of 82% in 1947 and then declined precipitously — to 35% in 1957 and 20% by 1967. By 1980, the share was an insignificant 3%. When Empires fall, they fall quite rapidly.
Finally, some people in the US are talking about the coming challenges for the US dollar. US Senator Marco Rubio complained in an interview that America’s ability to sanction other countries will be gone in about five years due to dedollarization around the world. Tucker Carlson on Fox News was more honest about the disastrous sanctions against Russia and the illegal confiscation of Russian forex, which have propelled countries to seek decoupling from the American/Western financial system.
(My previous article gives a detailed description of the dedollarization tsunami — Beautiful Things are Happening in Geopolitics).
However, most Americans still don’t understand the inevitability and repercussions of a post-dollar, post-American world. The denialism is strong in the first stage of grief.
Does anyone remember MySpace?
At one point, 100 million Americans were on it! I am sure its CEO was saying, “Facebook can never replace us! Why? We benefit from the so-called network effects! Who’s gonna sign up for a brand new social media app when all their friends are on MySpace?”
Well, once valued at $12 billion, MySpace was shut down and sold for mere $35 million just for its data.
The US dollar is the MySpace of currencies.
A more contemporary and a Chinese story would be, of course, TikTok. Mark Zuckerberg and others said, “Who’s gonna use a Chinese social media app outside the great firewall of communist China?? Hahaha!”
Yuan will be the TikTok of global currencies.
But not a global reserve currency
However, Yuan won’t become another US dollar. It won’t become the #1 global reserve currency. In fact, the whole concept of reserve currencies will become mostly a relic. With the ability to trade in local currencies and trade-specific bloc currencies, there won’t be much need for reserve currencies. And for the limited need, countries will have multiple options such as RMB, dollar, and Euro.
The US elites and most people are caught in a collective delusional bubble. Here are some simple truths:
The demand for US dollar around the world will fall steeply over the next few years. (Remember the chart for the British Pound).
The less demand for USD in global trade and FOREX will mean less value for US dollar. Basic economics.
This means higher interest rates, higher yields for bonds and higher cost for imports.
Of course, this would result in higher debt payments for the US government, which means austerity and higher taxes.
In a sensible world, US politicians and business leaders would get together now to candidly discuss the domestic and foreign policies for the post-dollar economy. But that’s not happening.
Chinese yuan is already an international currency:
RMB is one of the five exclusive currencies that make up the IMF’s SDR basket.
Yuan has already surpassed the Euro in global trade invoicing!
About 70 countries already have yuan in their FOREX portfolio
40+ countries have currency swap agreements. In the old days, China would have become an Empire and imposed its currency on everyone. However, in a multipolar world, China’s yuan would become the #1 global trade currency but not the imperialist reserve currency, which is actually detrimental in the long term.
China is happy with this sort of internationalization of yuan. There’s no need for King Yuan.
The King Dollar turned America into a war machine, a debt orgy, and a country of perpetual trade deficit. China won’t go down that path — that sort of economy and governance are completely antithetical to the Chinese system. And a multipolar world won’t allow a Chinese imperialism either.
The Chinese government’s philosophy is epitomized by what’s happening with BRICS and the peace deal between Saudi Arabia and Iran: Shake hands and let’s do business!
Look at the powerful symbolism in the picture above — Foreign Ministers of Saudi Arabia and Iran in Beijing, in front of a building with Chinese architecture.
This also cements China’s reputation in the Islamic world and the Middle East. Very crucial in a multipolar world. China is no more just the “factory of the world.”
Peacemaker between Sunnis and Shiites, Arabs and Persians… a historic milestone in China’s transformation as a geopolitical superpower. Without a global reserve currency status.
— S.L. Kanthan