The End of the Reignof the Dollar is Inevitable

The omnipotence of the dollar continues, but China and Brazil have decided to make the first, small steps to question and conquer it.

Beijing and Brazil have agreed that taxes governing their commercial exchanges be fixed in their respective currencies – the yuan and the real. If this initiative works, it will surely weaken the worldwide supremacy of the American dollar.

True, the United States is the greatest debtor on the planet; its financial practices are far from orthodox, and its commercial deficit has reached unmanageable heights. But it has the great advantage of being able to borrow in its own currency, what economists call an “exorbitant privilege”. Its currency is, meanwhile, used as units in myriad other situations, from propping up the price of petrol to comparing gross national products (GNP) among nations.

Attacks on Tradition

Its wide use has contributed to conserving the status of the American dollar. Thirty years ago, the U.S. unquestionably dominated the world on all fronts: economic, political, military and cultural. Though its influence has diminished since, other nations have continued to consider the U.S. as the referential authority and think in terms of dollars. Old habits die hard.

In the case of its success, the Beijing-Brazil accord would go up against this tradition. But as long as the worldwide frame of reference and the most primary materials stay in dollars, no significant change can be expected.

The magnitude of the sums the U.S. owes to the rest of the world permits it to keep a certain influence. The countries that give the U.S. credit have numerous reasons for accommodating to this famous exorbitant privilege, as they profit from what one would call a strange arrangement: In giving the American consumer the means to buy imported goods, they assure benefits and jobs for their own economies. Making the consumer shoulder the risk of exchange would only act to undermine this precious leverage.

The marriage of two factors – the weight of tradition and that of American debt – ensures that the reign of the dollar is not approaching its end, even if the Sino-Brazilian partnership flies.

It must be emphasized that this initiative expresses the annoyance engendered in China by the privileged role of the dollar, a sentiment already manifested on numerous occasions and through more or less official channels. The idea of a world liberated from the hold of the dollar is gaining momentum. Moscow and New Delhi could join the movement and permit the currencies of the BRIC countries (Brazil-Russia-India-China) to form the “4 R” bloc – (Real-Ruble-Rupee-Renminbi). The end of the dollar’s reign will perhaps be slow, but it is nonetheless inevitable.