This post was inspired by a combination of my ignorance regarding the geopolitical implications of currency exchange, a desire to understand what BRICS is and how it works, and comments in this post making fun of Paul Krugman. (https://hexbear.net/post/1040996)
In the comments to the linked post, comrades @emizeko@hexbear.net and @quarrk@hexbear.net discuss an article with an embedded video where economist Michael Hudson rips into some of Krugman's work. (https://www.nakedcapitalism.com/2023/05/ny-times-is-wrong-on-dedollarization-economist-michael-hudson-debunks-paul-krugmans-dollar-defense.html)
It's funny, but what I'm really interested in is an idea that Hudson presented. If I understand him correctly he states the following:
If countries conduct trade using American dollars, they have to first acquire these dollars by providing the US treasury with their own currency. This also requires establishing an American bank account. The US then uses that foreign currency to finance military bases/activities in places that require that currency.
The implications, as I understand them, are that you now have an American bank account holding at least some of your assets, and it's vulnerable to being seized by the US government. It also means that a byproduct of using dollars is that the US acquires the means to pay leases, bribes, contractors, etc. to facilitate military dominance all over the globe. Thus, many nations desire to increase their security by moving away from the dollar.
Comrades, help me out. Is this correct? What other basic things are there to know? Is this really why dollar dominance is so important?
I'll offer some thoughts but you might already know some of this if you studied classical economics; I'm unsure how much of this is 'currency' and how much is something else. Feel free to tell me I've missed the point!
I'm no expert but one other factor to consider is that every time the US prints dollars, it devalues the dollars that others already hold.
As for how it maintains power. It's a network that upholds the petrodollar. Enough countries agree only to trade oil in dollars and that's that. (Really, it could be all fossil fuels/energy, but let's keep it simple for my sake of nothing else.) No oil, no industry. No industry no trade – not even the lobsided trade where one country gives it's precious resources to the west for peanuts.
The other way for under developed countries to join in the world economy is to borrow dollars. They get squeezed by interest on those loans and by the deflation that hits the dollars they get in exchange for currency and other resources or commodities.
This is why Russia's success after being sanctioned is so monumental. Until then, it played ball and upheld the petrodollar for access to Western markets. Now? It has opened the way for the rest of the world to buy oil in other currencies. If the dollar loses its place as the reserve currency, it can't be used to bankroll so many military bases.
The US also protects the dollar with it's military. A relatively small portion of US domestic tax funds that military. Maybe 11%. The rest of the money comes from 'taxing' other states via the methods in question (currency manipulation, etc).
So the more that countries turn from the dollar, the less money the US has for it's military, and the less incentive to borrow or exchange in dollars, so the less the US has for it's military… Which means the way the US maintains it's power is starting to crack.
Fascinating. All my economics classes were a very long time ago, so I've forgotten the details of almost everything, and like I said, I never got much of a handle on how currency works. Thank you so much. I never really thought of how currency manipulation can work to create a material military advantage, which leads into a positive feedback cycle that makes it easier to further manipulate currency, and so on and so on... I wouldn't say I understand it, but I'm getting somewhere.