The Guardian • Issue #2003

The end of US dollar hegemony

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What is the potential impact on Australia and its workers of the end of US dollar hegemony? This is not an idle question, but a reality we face today.

A little history, based on the works of Marxist economists. Three key terms define the last century of the US dollar.

First, retreat. The effort to make the US dollar the global currency was actually a retreat. Initially, the USA had tried to emulate the British and other European empires with territorial expansion. This effort in the early twentieth century failed miserably, so they tried to make the world reliant on the US dollar.

Second, crisis. From the beginning, the US dollar has staggered from one crisis to another. Many argue that its role has actually increased global instability. Every crisis saw yet another wild proposal to rescue the dollar’s role: another war; unilaterally abandoning the gold standard in 1971, financialisation (and the associated de-industrialisation), globalisation, unlimited debt, and many more. Perhaps the only “success” was to get oil traded in dollars – the “petrodollar.”

Third, decline. By the turn of the 21st Century, the dollar was running out of steam. It has been in steady decline since 2000, with usage in international exchange dropping to about thirty-seven per cent even less than the Euro. The stranglehold on oil and gas has also been in decline.

Signposts of the decline: an obsession with ever more unilateral sanctions, with Europe and even Australia becoming addicted to sanctions; plundering the forex reserves of whole countries, such as Iran, Venezuela, Afghanistan, and now trying to do so with Russia; threatening to refuse to pay money owed on treasury bonds should countries make such a request.

All of this has now come to a head with the unprecedented effort to sanction Russia – one of the world’s largest and important economies – out of existence. This feels very much like a last throw of the dice for the US dollar. It is still too early to tell what all of the consequences will be, but it is clear that most countries in the world now regard the US dollar, and indeed the troubled Euro, as unreliable and untrustworthy currencies.

What about Australia? And how will this affect workers?

Already there is an effort to cling more closely to the USA and its dollar, as if to prop it up for a while longer. We can see this with moves to connect Australia with the US’s military-industrial system. This may delay the shock for a little while, especially for those engaged directly or indirectly in military production. But the conditions of every other worker will deteriorate even further.

This effort may lead to a major economic shock as the number of countries relying on the US dollar shrinks further. Runaway inflation and recession are already appearing in Western countries – the fateful stagflation that sets the conditions for a full-blown depression. Economic shocks affect workers first and foremost, with high unemployment, low-paid work if you can get it, and homelessness. For those looking for support in retirement, the superannuation funds for workers – which are up to their eyeballs in US dollars and have only thirty-five per cent of their funds invested in Australia – may well be in deep trouble.

There is another option: a break with the US dollar and engaging with the majority of the world. The shape of things to come includes: currency-to-currency exchange as a norm for an interim period; reserves held in national currencies and gold; a global structure underpinned by BRICS (among other structures), which has more than forty per cent of the world’s population and twenty-seven per cent of its landmass; and many more countries with which to engage.

Obviously, the final option is the least likely now, although it may become necessary later – perhaps too late. But if Australia did take this final approach earlier, it would no longer be trying to prop up the US dollar and conditions for workers may be ameliorated. But only ameliorated: as long as Australia remains a capitalist country, the benefits would be very uneven, favouring some and not others.

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