with the news that iran is allegedly considering allowing only renminbi oil through the strait, i figured it would be a good time to ask: what happens inside and outside the us when dollar hegemony goes away? will manufacturing be reshored to the usa? will it usher in a wave of prosperity for the usamerican colonizers? will it free the periphery from the chains of empire? most of these are answers i feel like i can probably guess at but i haven’t read lenin’s imperialism yet so i’m hoping for someone more knowledgeable to say.
Oh it’ll be bad. And part of the undoing of the US empire and as others have said, will happen as a symptom of a declining empire further declining it.
It’s not quite a direct comparison but it’ll be like Chinese tributaries (back in the imperial times) not paying their tributes anymore, and declaring themselves king of their provinces. Normally the emperor would send the army to restore the flow of tribute, but at the tail end of each dynasty, they faced other problems that prevented them from restoring dominance. Problems compounded further problems.
The petrodollar means that nations need US dollars to trade petrol with - both selling and buying. In return, oil producing nations use the dollar to get cheaper US weapons and miltech (which Iran just wiped out). That was the agreement in the 70s. The US wins on all counts there - they control the dollar so they control the price of oil to an extent, they make the money back by selling military equipment, and the dollar stays strong because every country in the world needs dollars.
This is (partly) the reason countries like Venezuela and Russia have bank accounts in the US, because they need dollars available. It’s why the US can easily sanction other countries even without the UN (along with other forms of sanctions like the embargo on Cuba).
It also explains why the US has a huge trade deficit with the world but its money is still strong (not as strong as it used to be but still strong). The dollars they use to buy oil eventually return to the US economy.
I don’t think China wants a petroyuan though, rather they will be happy for everyone to trade on whatever currency they want.
The US imposed sanctions and embargoes would lose their severity. They can still blockade other countries though, but they wouldn’t be able to maintain their naval dominance for too long after the fall of the petrodollar.
A couple unordered thoughts, in large part based on Michael Hudson’s theory of Superimperialism.
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We can look at the interwar period to see roughly what currency multipolarity means for international relations.
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The balance of payments of a given country must be roughly balanced. This means physical imports and exports as well as capital.
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Choosing to run up current account surplus or deficit will be punished organically with currency destabilization.
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Since the US finances its overseas bases and its federal deficit spending with their balance of payments deficit hegemonic dollar infinite money trick (happy to explain in another comment), with dolllar hegemony over, that trick ends too.
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The petrodollar ending also means much less capital flowing into US stock market ponzi machine.
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Rigged international loan agreements a lá the IMF become much easier to discharge.
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It will free the periphery, or at least make it much easier for the periphery to free themselves.
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USD will lose value but this may not be enough to reinvigorate manufacturing in the US. Overhead costs are too high and with a weak dollar and nothing to export to get foreign currency in exchange, there may not be any capital or import capacity to get manufacturing going again.
balance of payments infinite money trick
i’d always heard that the us was willing and able to absorb deficits and surpluses as the global economy demanded and that’s how the dollar became hegemonic. according to that explanation, that required the us to outsource manufacturing. that never seemed accurate to me but i don’t have the full picture either. is that explanation even close?
From my understanding that’s not correct. Manufacturing was outsourced to reduce labour costs and increase profits, and to place US based capital interests in charge of global south resources.
I would say there are three distinct phases in the post-war financial period, but in all of them the US had a balance of payments surplus.
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Immediately post-war only the US had manufacturing and thus export capacity.
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Starting with the invasion of Korea and ending with the invasion of Vietnam, the US spent a lot of dollars abroad. Since these dollars were sold back to the US for gold, what was once the largest gold reserve in the world quickly dwindled to not enough to cover pending debts.
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The dollar standard is first paused then dropped in 1973; now USD can only be used to buy treasury bills (US federal debt) or minority shares in US public companies. This is the infinite money trick as I understand it: spend a dollar abroad, say at a US military base, this dollar works its way to that country’s central bank, the central bank buys a t-bill with that dollar, and the US has the dollar back in the treasury ready to spend. Interestingly the annual federal budget deficit is almost precisely equal to the surplus of dollars put out in the world.
As to how the dollar became hegemonic, it starts with the forced abolishment of the pound sterling area in 1945 (and thus the de facto end of the British empire and the only currency theoretically able to challenge the dollar at the time) and finishes with the end of the gold standard and the start of the petrodollar in the 1970s.
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what happens inside and outside the us when dollar hegemony goes away?
Hyperstagflation for US. USD value will drop significantly crushing America’s purchasing power. Combine that with the excessive money printing that US banks are notorious for and you get double digit monthly inflation. (Rich will race to buy up assets like property even more putting housing even more out of reach which has a knock on effect to rents.)
Recession for rest of world as their US bond assets lose value and their export sales to US lose their profitability.
will manufacturing be reshored to the usa? will it usher in a wave of prosperity for the usamerican colonizers?
Doubtful. Manufacturing relies on effective supply chains. The US would be in global competition with other countries that are far more established with far less debt.
.>will it free the periphery from the chains of empire?
Not really. A lot of countries like say Mexico and Canada are inherently linked to the US economy. When US goes does it will drag down plenty of other countries that are too slow to diversify.
The US would suddenly be subject to the rules everyone else in the world has lived under for the past 100 years.
I can’t properly respond without writing a book, but I’ll say that the sunsetting of dollar hegemony is both a symptom of sunsetting empire and a causal factor for it.
In a nutshell the USD would lose value. This would mean a huge hit in the livelihood of every american, or else, with savings on dollars. It would also heavily hinder the ability of banks and goverment to print money, say goodbye to low interest loans, goodbye to military spending, defence contracts, psyop funds, etc… Dollar hegemony ending means the US will now face real consequences for printing money.
The current breed of american statesman is not prepared for it.
what if dollar hegemony goes away?
There will be less pontification regarding the moralism of moralism in US Veteran apologism.
If the petrodollar no longer exists, then the US has to start paying back their debts and can no longer print money without reserve.
Looking at it from a supply/demand model, you no longer have global demand for USD to facilitate trade. That means supply must necessarily decrease proportionally for the dollar to maintain its value.
What this translates to is not only austerity in the US, but also defunding its military industrial complex. It would have to reduce global operations.
