A Patron of Democracy at Work asks: "I'd love to hear your thoughts on what a world looks like if the US dollar loses its primacy. What does the "economy" look like in the USA? Will there be a huge collapse?"
This is Professor Richard Wolff's video response.
Transcript has been edited for clarity
This is Richard Wolff from Democracy at Work responding to another Ask Prof Wolff question from our Patreon community and this one comes from David. Again, I've chosen it from the questions you've been sending because a number of you have asked similar questions. It’s about the dollar—the US dollar—and it's about whether the dollar is losing its primacy in the world and more importantly if it is…because it is…What are the implications? What does it mean for the United States? Will there be a collapse? What are the other consequences? Very important question…so let me begin by assuring you that yes the dollar is losing its primacy.
There really is no question about this. The disagreement is how fast this process is going and will go—not about whether it will happen. Except for a few, mostly on the right wing of political thinking, but even the most steadfast supporters of capitalism and supporters of the United States are able to see that the dollar is literally losing its global position. What was that global position? Well, it was the dominant currency of the world pretty much since the end of the Second World War so that's 75 years and counting. In many countries, the dollar exists as a currency alongside of—or in some cases instead of—that country's currency. Central banks around the world use dollars as part of their reserve alongside gold and other valuable things to show that they can support their currency. The more the world needs and uses dollars, the more the United States has enjoyed an impeccable economic gain from that.
First of all, we give the world dollars in exchange for something. We don't just hand it out. We get something as a nation—as an economy. For example, if we import goods and services and pay for them with dollars, we get something that is worth the work that went into it: the French wine, the Chinese consumer goods, the Indian technology products, and all we give them is cheap little pieces of paper—dollar bills, hundred dollar bills, or the electronic equivalent. It's a wonderful way to get the wealth produced around the world and to give in exchange merely a claim on some wealth that may never be…actually demanding something because they use the dollars and buy them and sell them and keep them. Many of the people around the world use the dollars that they accept in exchange for the goods and services they produce to lend those dollars back to the United States government thereby funding our wars and many of our ongoing governmental activities. Why is that important? Because that allows the government not to tax Americans but instead to borrow the money from all those who have dollars and are willing to lend it. So, the benefits to the United States have been enormous.
As the dollar loses its primacy…as more and more people around the world stop using the dollar…reduce using the dollar…all those advantages—and many more I don't have the time to go into—will be and are being lost and the impact on the American economy will be large and cumulative over time.
Well then why is the dollar losing its primacy? Much of it has to do with geopolitics. To put it very bluntly and simply, other parts of the world don't want to keep having workers produce and businesses produce valuable goods and services shipping them to the United States and getting in return dollars. They want the benefits of a currency like the United States has gotten but they want to share in it too by having their currency become as important as the United States. Chief among them—the Europeans with the Euro, the Chinese with the Yuan, and so on and they have been acting to realize that objective. The most important steps—BRICS, a global alliance—Brazil, Russia, India, China, and South Africa—with at least another 6-10 nations applying now to join BRICS. They want to develop a non-dollar-based trade among them and these are nearly half the population of this planet. They are talking about trading in either the Chinese currency—because that's the most powerful economy among them—or in some organized currency that they set up for this purpose. That’s the most tangible change.
Here’s another one. Literally, a few days ago, the Chinese brokered an agreement between Iran and Saudi Arabia overcoming the hostility and the wars between them—direct and indirect— overcoming much of the split between Shiite and Sunni Islam. They’re opening embassies in each other's countries—The Iranians and the Saudis. Please be aware that Saudi Arabia is the largest producer of oil in the world and is now closer to China with whom it is trading more and more than it used to be with the United States. That shift is crucial. Trade in oil used to be done in dollars requiring everyone to keep and hold dollars. China and Saudi Arabia are discussing what they call the petroyuan. That is trade in oil denominated in the Chinese currency. The value of the dollar in relationship to other currencies is therefore likely going to fall in the years ahead that will make imports into the United States—which we now depend on—much more expensive. It will therefore also drive up the price of those imports and that will be an inflationary boost when the United States needs it least. We will become more and more of an exporter as our dollar goes down in value. Our goods become cheaper for people buying the devalued dollar. It will shift our economy around…those shifts are always difficult. They may if they're not properly prepared for…not properly managed…produce a crisis and it could be as serious as the crisis that threatens from the collapse of the American banking system in recent weeks. So yeah, it is dangerous or it could be…but it is more a long-term readjustment of the world that Americans are having a hard time getting their heads around. We are not the dominant player in the world today as we were for most of the last century. That is over and more important than anything—is to come to terms with that reality because it is becoming truer and truer with each passing week.
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Transcript by Barbara Bartlett
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