My Take | Leave it to America to undermine its own dollar dominance
- Not just foreign governments, whether hostile or friendly, but more American states themselves are losing faith in the dollar and hedging against it
People are always asking whether de-dollarisation is real. One side says that’s ridiculous because there is simply no alternative or substitute on the financial horizon. The yuan? Don’t make us laugh! The other side claims it’s already happening, just you wait. I am no economist, so I wouldn’t know one way or another. But history, I think, does offer some guidance.
One thing worth noting is that both sides here focus on external challenges to the greenback, particularly the Chinese and their yuan. But what about internal or domestic threats?
One great lesson from Arnold J. Toynbee’s magisterial A Study of History is that dominance throughout history almost always ended by suicide, not murder. At most, an outside enemy or challenger delivered the coup de grace to an already mortally wounded body politic; think of late Rome. Perhaps we can also call it the Camelot problem. King Arthur’s Round Table didn’t collapse from an external threat, but internal strife.
As the ultra-hawkish, but terribly ignorant, US Republican Senator Marco Rubio wrote recently in the Telegraph, “tyrannical China wants to topple the US dollar”. Well, it’s not just Beijing but many others, including some countries that are at least notionally friendly with the US. India, anyone?
With all the money printing, weaponisation of the dollar-based international financial system and farcical bickering over a sovereign debt default in Washington, even the most diehard fan of America may feel unnerved.
I am sure the Chinese want to dethrone the dollar, but they are also economically literate, unlike Rubio. With capital controls firmly in place, a fully convertible yuan is not even the current goal of the central government, but that would be a prerequisite to compete with the US dollar, for example, for global reserve currency status. If foreigners can’t get enough yuan for settlement and trade on the international market, they will still have to use the widely available dollar or the euro.