US Shoots Itself With Own Super-Weapon

The USA has shot itself in the head with its own wonder weapon. The most powerful weapon in the US arsenal is not F-16 jets, Himar missiles, or any of the other conventional war toys. Real US power resides in the US dollar. By increasingly weaponizing the dollar and access to the dollar-denominated global trading system, America has taken to the greenback with a blowtorch that will trigger a reckoning for the ages.

It is a classic case of imperial overreach. This October in Kazan, Russia, a set of counter-measures will be launched by the BRICS countries that will fundamentally change the balance of global power – not overnight, but as surely as night follows day.

“The danger that everything will spin out of control keeps growing, as ever greater financial weapons are developed and deployed. But no one seems to know what to do about it.” Underground Empire

The $USD is the Golden Goose or – to use another animal analogy – the cash cow of America. The Bretton Woods system established after WWII made the USA the world’s banker; with that came a commitment that the US would act as a neutral party when businesses and governments put money into the dollar. Economists like Richard Wolff, professor emeritus of economics at the University of Massachusetts Amherst, point out that since the end of WWII, at no cost and little risk of inflation, the US has printed or digitally created trillions of dollars and purchased the world's products and services in return. That’s the privilege that comes with owning the world’s reserve currency. Having been paid in USD these same trading partners then invest much of those dollars back into US Treasuries and other dollar-denominated instruments. It is a unique advantage that should be protected at all costs – Britain had the same in its heyday. Instead, America is destroying its unique competitive advantage with the weaponization of the dollar and the global trading systems coupled to it. Today a majority of the world economy lives under US sanctions or other coercive measures.

One of the most important books people should get their hands on is Underground Empire - How America Weaponized the World Economy - by Henry Farrell, Professor at John Hopkins and Abraham Newman of Georgetown University. Published in 2023, it provides a history lesson, case studies (Huawei, Iran, the Snowden moment, etc) and a code book for understanding what it all means. Coercive measures explored include embargoes, threats to be kicked out of the international Swift payment system (the primary mechanism for settling international payments), forcing major internet providers and other companies to hand over commercial information to US officials, taking control of choke points in the global internet and finance systems to spy and bully, and using intellectual property and dubious application of law to effectively conduct piracy. All are linked to dollar power.

Putting the squeeze on North Korea to (unsuccessfully) stop its nuclear weapons programme taught the US lessons they refined in their attack on Iran. One of the shocks was how successful they were at driving a middleweight economy like Iran out of the global financial system. Other successes include wrecking Huawei’s business model and seeing it slip from 20% of mobile devices to 4%, and crippling its rise in the 5G market.

So prevalent now are US economic sanctions that most people didn’t even notice that the Moscow stock exchange, MOEX, was forced to cease trading in dollars and euros this month. It barely raised a blip on the western media’s radar.

US sanctions were supposed to cripple Russia, turn Sevastopol into a NATO port, drive Russia out of the ranks of the great powers, and trigger regime change. The opposite has happened; Russia’s economy has boomed and it has now overtaken Germany in parity purchasing power (a tool for inter-country comparison used by OECD, World Bank and other institutions). Putin by any measure, including US research, is more popular than any leader in the West.

This month the G7 announced they will raise $50B in loans for Ukraine and pay bond holders with interest from Russian funds stolen by Western countries as punishment for invading Ukraine. Innovative, it may be, and many are cheering on the move, but the measures also take a wrecking ball to the idea that placing your money in USD or Euro is a safe thing to do. “Trust me, I’m an American banker” isn’t a convincing pitch these days.

Decoupling from the USD is moving at a pace few imagined possible. Twenty years ago nearly 70% of global reserves held by central banks were held in USD. That figure has dropped to around 50% and the downward trend is accelerating.

You may dislike Iran, North Korea, Venezuela or any of the dozens of countries currently under US sanctions. You may fully accept the Western narrative that the war in Ukraine was unprovoked and must be punished, or that China must be stopped from rising – but the reality is that any bank that seizes the assets of someone who banks with them frightens the bejeebers out of anyone else with deposits.

Countries such as Saudi Arabia, Turkey, Malaysia, Venezuela, and much of the Global South - in other words, the bulk of humanity – are cautiously looking for the exit. Moving away from the dollar is increasingly about de-risking. Gold, a basket of other currencies and repatriation are increasingly attractive alternatives.

China, at March 2024, held $767 billion in US Treasuries, about 10% of the U.S. national debt. Already subject to thousands of sanctions, China knows that the US will do almost anything to stop its rise; and so, according to President Xi, it must build a system that is independent of US dominance. There is a real danger of the world sundering into two systems.

This October in Kazan, Russia, we may witness major moves in the creation of an alternative trading mechanism to compete with SWIFT (the global interbank communications system), the creation of institutions to displace the IMF and World Bank – perhaps an expanded BRICS New Development Bank (current capital base $100 billion) - and the induction of many more countries into the BRICS framework which is rapidly dwarfing the G7.

Russian foreign minister Sergei Lavrov: “A process has been set in motion following the most recent summit in Johannesburg. World leaders asked their finance ministers and central banks to make recommendations on alternative payment platforms. Thus, the process is underway, and there is probably no stopping it.”

President Lula of Brazil suggested that CELAC, the Community of Latin American and Caribbean States, would look to the new trading platform to safeguard their trade and economic relationships against abuse by the dollar. Three dozen countries have signalled they wish to join BRICS.

As Farrell and Newman said in Underground Empire, “When you have built the economic equivalent of a nuclear arsenal, you shouldn’t be surprised when others think about striking first or striking back.”

Eugene Doyle is a writer based in Wellington. He has written extensively on the Middle East, as well as peace and security issues in the Asia Pacific region. He hosts the public policy platform solidarity.co.nz.

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