The Dollar's Reign Has Come to an End
Published in L'Express
(France) on 3 June 2009
by Christine Kerdellant (link to original)
The early warning signs weren’t taken seriously. In March, the head of the central bank in China proposed replacing the dollar - the reserve currency - with a basket of currencies. In May, China and Brazil announced that they would now avoid the greenback in international trade. The revolt is brewing against the American currency, seen as doomed to fall. From now on, the United States will have such debt, that balancing the world economy through recovery in exports assumes a lowering of the dollar. China, holding 2,000 billion dollars in reserves, doesn’t want to find itself stuck with monkey money!
A monetary system always leads to struggle: between borrowers, who wish for inflation (it diminishes their debt); and lenders, who want a strong currency. Yet history has shown that lending nations always end up setting the game rules. Some empires are dying! Today, we are at a historical crossroads: a new monetary world order is going to be born.
For a century, we have known three such events. Until 1944, the monetary system was regulated by the gold standard. Then the dollar standard followed, born of the Bretton Woods Accords. This led to the United States' rise to power, and Europe’s turn as debtor. Finally, we entered the era of floating exchange - when the United States decided to uncouple the greenback from its gold value. The dollar remained the standard, with the yen and the mark; then with the euro, by way of puny alternatives. But if the system has endured up until now, keys to its success - the accession of China and the bankrolling of petroleum countries to power by their commercial surplus - also indicate its end.
But what will replace the dollar? Gold, that “savage relic”? That’s a refuge, not a practical currency. The euro? Europe would suffer to stomach the inevitable increase. The SDR (Special Drawing Rights of the IMF), recommended by Joseph Stiglitz or George Soros? They might be too complicated. A definite certainty: China and the other ants have begun to diversify their reserves. And the United States will suffer.
A monetary system always leads to struggle: between borrowers, who wish for inflation (it diminishes their debt); and lenders, who want a strong currency. Yet history has shown that lending nations always end up setting the game rules. Some empires are dying! Today, we are at a historical crossroads: a new monetary world order is going to be born.
For a century, we have known three such events. Until 1944, the monetary system was regulated by the gold standard. Then the dollar standard followed, born of the Bretton Woods Accords. This led to the United States' rise to power, and Europe’s turn as debtor. Finally, we entered the era of floating exchange - when the United States decided to uncouple the greenback from its gold value. The dollar remained the standard, with the yen and the mark; then with the euro, by way of puny alternatives. But if the system has endured up until now, keys to its success - the accession of China and the bankrolling of petroleum countries to power by their commercial surplus - also indicate its end.
But what will replace the dollar? Gold, that “savage relic”? That’s a refuge, not a practical currency. The euro? Europe would suffer to stomach the inevitable increase. The SDR (Special Drawing Rights of the IMF), recommended by Joseph Stiglitz or George Soros? They might be too complicated. A definite certainty: China and the other ants have begun to diversify their reserves. And the United States will suffer.
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