Dollar: imminent demise?


Samuel P Huntington, in his book, “Clash of Civilizations”, explained that the “culture and cultural identities” would be shaping up the cohesion and conflict in the post-cold War period. Fast forward to the 21st century, we are witnessing many structural and ideological changes in the international system where the regional countries that once used to be the harbingers of Neoliberal system and the supporters of dollars are now following a new trajectory; a trajectory towards de-dollarization and de-globalisation

Many precedents have come into the limelight that supports this logic. Among them are the imminent and palpable demise of the dollar and the rise of regional economies.

Following the end of WW2, the “Bretton Wood” system was established, leading to the making of the dollar as the “king” currency for International trade.

The rationale for making the dollar the global trade currency was partly due to the stability of the US in the political and economic spectrum and partly due to the significant accumulation of gold by the US. Hence, these factors made the dollar the king cuureny while making the US its controller.

Nevertheless, it is becoming slowly and gradually evident after the imminent reduction in the intensity of the dollar.

Many structural and ideological reasons have culminated in the slow and gradual demise of the dollar. These are;

Firstly, the soaring debt ceiling of the US has become a significant concern for the US and the regional states. In 1917, when the US finally decided to enter the war, it was short of resources to finance it; therefore, in exchange for dollars, the US government started to issue bonds to the citizens. This was called as “statutory debt limit”. Thereafter, the treasury borrowed money from the citizens in exchange for bonds to further finance the interest on the debt. Therefore, in the next few decades, the debt ceiling of the US has soared to around $31.4 trillion.

Although it has been observed that, for now, the calamity associated with the debt has been ameliorated, however much damage has already been afflicted. The majority of the allies of the US are now hesitant to put their trust in the US and its economic system.

Secondly, the stringent and protectionist policies adopted by the US, especially during the time of  President Donald Trump, has made the allies and regional state vary about the intentions of the US. States are finding it hard to put much trust in the policies of the US following the “slapping steep tariffs on billions of dollars’ worth of goods” from China, Mexico, and the European Union. In return, many of these states have responded by imposing levies on US goods. Hence, an environment of “trade war” has been initiated among the states.

Thirdly, a process of de-globalisation has started to take place where the states are moving and putting more emphasis on regional trade and connectivity, also known as regionalism. This had also been highlighted in an article on Foreign Affairs, “After Liberalism”. According to it, states are going towards regional trade and connectivity. In fact, many of the regional states and organizations have established a unanimous currency through which they have started trade with one another.

For instance, India has started to assert the use of its currency for international trade in order to spur and boost its exports. Meanwhile, the ASEAN states have also agreed to use local currency as a means of regional trade. Through it, a much better and enhanced mode of regional payments could be established.

This de-globalization of the world trade is partly driven by the ultra-nationalistic and populist tendencies of the global leaders, and partly this has been ignited by the stringent protectionist trade policies of the US under the dispensation of Donald Trump.

Last but not the least, 20 years of wars in Afghanistan, together with the war in Iraq has completely drained the resources of the US. The last and hefty and sudden withdrawl of the US forces and the visuals that were recorded of the Kabul airport showed a complete dark side of the remaining strength and influcene of US in the southasian region. According to that official estimates, US spend more than $2.7 trillion in order to support the US-led allies and while leaving a chunk to support the reconstruction and infrastructure development of the Afghanistan. However, end to no avail as the same Taliban that were once bogged down from the throne of power are now much more stable and control a greater territory than they once used to back in 1990s.

To cap it up, as Robert D Kaplan had explained that the imminent demise of the US would be a distant dream due to the geographical proximity that it enjoys. However, the changing regional and global dynamics together with the rise of regional states would diminish the power of US, relatively and would pave the way for the regional states.

Muhammad Imad Abbas
Muhammad Imad Abbas
Studying BS IR NUML , Islamabad