Dollar and the Petrodollar
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Issue Net Edition | Date : 20 May , 2023

The POTUS Joe Biden’s visit to Papua New Guinea in a bid to counter growing Chinese influence in the Pacific has been cancelled. Biden also cancelled attending the QUAD meeting scheduled in Sydney, due to which Australia was forced to cancel the QUAD meet. Biden’s plans have been disrupted because of the critical debt ceiling talks in Washington. Biden wants the debt ceiling raised beyond America’s current national debt which stands at $ 31.46 trillion. After all, it is just a question of printing dollars ad libitum but it is not going to be easy this time to convince the Congress even as the Biden Administration may plead that America’s prestige is at stake. With the looming debt default in the run up to US presidential elections next year, the political football over the debt ceiling is being watched with interest around the world.  

The US policy all along has been to invoke wars and extract economic and strategic advantage from these, for which, the US also maintains about 750 military bases in some  60 countries and is fighting unwanted wars in a number of countries, all of which costs money. To top this, Biden is trying his level best to establish more military bases in the Indo-Pacific to take on China. The Philippines has already announced four additional bases for US troops in Balabac Island, Naval Base Camilo Osias, Camp Melchor Dela Cruz and Lal-lo Airport.

America’s GDP growth slowed abruptly from 2.6 percent in the fourth quarter of 2022 to 1.1 percent in the first quarter of this year. Federal interest rate hikes are creating credit crunch, resulting in failure of banks, reduced deposits and banks are cutting back on credits to individuals and businesses. In turn, credit restrictions are impacting demand. Bigger banks are gobbling up smaller banks.

Two major reasons why the US has landed itself in this predicament are the ‘Ukraine War and De-dollarization’; both the handiwork of the Biden Administration. In its war with Russia using Ukraine as the proxy, the Biden administration and the US Congress had already directed more than $75 billion in assistance to Ukraine by mid February 2023 since the time hostilities broke out. This is in addition to more than $80 billion worth of aid committed by NATO to Ukraine in the same period. Veteran US officials have been saying that this is only a fraction of assistance that the US plans for Kiev but how this would affect the debate on debt ceiling is yet to be seen.

On the issue of de-dollarization, most US analysts are gung ho that destabilizing the US dollar as the major international trading currency is very far off. This confidence is perhaps similar to the US narrative that midget Ukraine, backed by the US-NATO, can defeat Russia – a superpower. However, they admit that the process of weakening the dollar has begun and its standing as the primary international currency can hardly be taken for granted forever.   

Pepe Escobar wrote in ‘Information Clearing House’ on April 27, 2023, that the dollar share of reserve currencies in 2022 slid 10 times faster than the average in the past two decades; status of the US dollar as a global reserve is eroding –  when the corporate western media begins to attack the multipolar world’s de-dollarization narrative in earnest, you know the panic in Washington has fully set in. He further writes that it is no longer far-fetched to project a global dollar share of only 30 percent by the end of 2024, coinciding with the next US presidential election.

No doubt Central banks hold $12 trillion in dollars as foreign exchange reserves, but America’s economic terrorism through freezing central bank reserves of countries like Afghanistan, Iran and Russia, plus manipulating the SWIFT system would adversely affect the US dollar in the long run. When over $300 billion of Russian foreign reserves were frozen by the West in February 2022, it triggered a chain reaction with countries and organizations looking for alternatives.

It is no secret that the US-NATO has been discussing how to undermine the economies of China, Russia and even India. But at the same time the Ukraine War has also undermined the economies of European nations which their leaders fail to acknowledge due to their allegiance to Washington at the expense of their public. The US aim to weaken the European economy is also to ensure the Euro does not emerge as a major rival to its dollar.

While BRICS, with its founding members Brazil, Russia, India, China and South Africa, is going in for an alternate currency to the US dollar, some 19 countries are joining BRICS+. How powerful would this organization become eventually in comparison to say the G7 needs reflection. According to recent figures of the IMF, the existing five BRICS nations will contribute 32.1 percent to global growth, compared to the G7’s 29.9 percent. BRICS have the commodities and G7 controls finance but G7 cannot grow commodities while BRICS can create currencies – especially when their value is linked to tangibles like gold, oil, minerals, and other natural resources. Notably, pricing for oil and gold is already shifting to Russia, China, and West Asia.

More than the dollars, the petro-dollars will hasten the decline of the US dollar. American plunder of the Middle East/West Asia over the decades has united the Arab World. Even Syria has been readmitted into the Arab fold.  Now the US war on Russia over Ukraine has bonded Russia and Saudi Arabia. The Moscow-Riyadh partnership in OPEC+ metastasizes into BRICS+ concurrent to the deepening Russia-Iran strategic partnership can hardly look kindly at America’s so-called Rule-based World Order, which actually id “Rogue-based”.

The Iran-Saudi rapprochement also implies a much closer relationship between the Gulf Cooperation Council (GCC) as a whole and the Russia-China strategic partnership. Moreover, Saudi Arabia is steering the Russia-Iran-China (RIC) strategic partnership away from the US. No doubt the US is also experimenting with alliances like ‘I2U2’ in West Asia on the lines of QUAD but the scars inflicted on West Asia by America run deep. Besides, where the US is flaunting the G-7 Leaders Summit in Japan this weekend, China is already hosting the two-day Central Asia Summit that commenced on May 18, 2023 with heads of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan meeting one-on-one with Chinese President Xi Jinping.

A cross-section of Americans is convinced that the US is invincible and so is the US dollar. Their reasoning is: Central Bank reserves can be held hostage any time; there is nothing today that can replace the US dollar; the Yuan is not freely convertible; no American billionaire or millionaire thinks of storing wealth in Yuan; despite being the top global factory, China has not figured out how to create a financial system that is efficient, transparent and trustworthy; the jury is still out on whether the Euro will survive in the long term – Europe lacks US-style deep capital markets, banking, fiscal and political union; dreams of a BRICS currency will remain dreams since these economies have little in common with each other, and;  and; other currencies cannot be challengers.

Call the above overconfidence or an illusion, the looming de-dollarization can hardly be wished away. The blame for its acceleration lies squarely on the US administration. The 10 times faster than the average slide of the US dollar as the reserve currency in 2002 is just one pointer. Even if the US Congress raises the debt ceiling, the slide of the dollar will likely continue no matter how many more hotspots Washington creates globally.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Lt Gen Prakash Katoch

is Former Director General of Information Systems and A Special Forces Veteran, Indian Army.

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2 thoughts on “Dollar and the Petrodollar

  1. “This confidence is perhaps similar to the US narrative that midget Ukraine, backed by the US-NATO, can defeat Russia – a superpower.”
    :):):) is US-bashing your hobby?

    Whether US dollar is used as default currency or British Pound or Chinese Yuan or Japanese Yen or some other, it depends on which country has technological breakthroughs.

    Tech. breakthrough of this century is cold fusion. That has already been achieved by the West (which includes US, UK, EU, Japan, SEATO countries etc).

    USSR(15 different countries) was an economy one-half the size of USA. This was in 1989. Russia is a failed state today.

    Do the math.

  2. Excellent analysis. It is refreshing to read an independent viewpoint as most Western commentators have an eye on their domestic politics when they plan what to say or disclose. A writer like Lt Gen Katoch has no concern for US political games and so he can tell it straight – and he does.

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