[What is dollar hegemony?]

Dollar hegemony seems to be the position that has just ended as of this week very abruptly. Dollar hegemony was when America’s war in Vietnam and the military spending of the 1960s and 70s drove the United States off gold. The entire US balance of payments deficit was military spending, and it began to run down the gold supply. So, in 1971, President Nixon took the dollar off gold. Well, everybody thought America has been controlling the world economy since World War I by having most of the gold and by being the creditor to the world. And they thought what is going to happen now that the United States is running a deficit, instead of being a creditor.

Well, what happened was that, as I’ve described in Super Imperialism, when the United States went off gold, foreign central banks didn’t have anything to buy with their dollars that were flowing into their countries – again, mainly from the US military deficit but also from the investment takeovers. And they found that these dollars came in, the only thing they could do would be to recycle them to the United States. And what do central banks hold? They don’t buy property, usually, back then they didn’t. They buy Treasury bonds. And so, the United States would be spending dollars abroad and foreign central banks didn’t really have anything to do but send it right back to buy treasury bonds to finance not only the balance of payments deficit, but also the budget deficit that was largely military in character. So, dollar hegemony was the system where foreign central banks keep their monetary and international savings reserves in dollars and the dollars are used to finance the military bases around the world, almost eight hundred military bases surrounding them. So, basically central banks have to keep their savings by weaponizing them, by militarizing them, by lending them to the United States, to keep spending abroad.

This gave America a free ride. Imagine if you went to the grocery store and you just paid by giving them an IOU. And then the next week you want to buy more groceries and you give them another IOU. And they say, wait a minute, you have an IOU before and you say, well just use the IOU to pay the milk company that delivers, or the farmers that deliver. You can use this as your money and just you’ll as a customer, keep writing IOU’s and you never have to pay anything because your IOU is other people’s money. Well, that’s what dollar hegemony was, and it was a free ride. And it all ended last Wednesday when the United States grabbed Russia’s reserves having grabbed Afghanistan’s foreign reserves and Venezuela’s foreign reserves and those of other countries.

And all of a sudden, this means that other countries can no longer safely hold their reserves by sending their money back, depositing them in US banks or buying US Treasury Securities, or having other US investments because they could simply be grabbed as happened to Russia. So, all of a sudden this last week, you’re seeing the world economy fracture into two parts, a dollarized part and other countries that do not follow the neoliberal policies that the United States insists that its allies follow. We’re seeing the birth of a new dual World economy.

[Are other countries starting to shed the dollar? What about the treasury bonds that have been basically funding our domestic economy? Are the central banks shedding those bonds?]

No, they haven’t been funding our domestic economy because the Federal Reserve can create its own money to fund the domestic economy. We don’t need to borrow from foreign countries to fund our economy. We can print it ourselves. What the dollar hegemony does is fund the balance of payments deficit. It funds our spending in other economies, our spending abroad. It doesn’t help our economy, but it does help us get a free ride from other countries. The more dollars we spend in making a military base, all these military expenditures get turned over to the local Central Bank that turns and sends them back to the Federal Reserve or deposits them in US bank accounts. So, it’s the international free ride we get, not a domestic free ride.

Well, figures are only available at the end of each month, reported at the end of each month and then there’s a two-month delay, so we don’t have any idea what’s happening. But I’ve been talking to people all over the world in the last few days and the consensus is that everybody is now deciding the only place, certainly if you’re China or Russia or Kazakhstan or you’re in the Eurasian orbit, South Asia, East Asia, you realize, wait a minute, if all we have to do is something like Allende did in Chile or all we have to do is refuse to sell off our industry to American investors and they can treat us like they’ve treated Venezuela. So you can imagine that everybody’s watching this and there’s an expectation that as a result of the war in Ukraine, that’s really America’s NATO war, that this is going to create a balance-of-payments crisis throughout the whole Global South as their energy prices go up, oil prices soar, food prices are going to soar and this is going to make it impossible for them to pay their foreign debts unless they go without food and energy. Obviously, this is a political crisis. That is, the only result can be to split the world in two.

[Are we seeing the end result of de-dollarization? People have said it's been getting faster and could happen quickly.]

Yes, and nobody expected that it would happen this quickly. Nobody expected that it would be the United States itself that ends de-dollarization. People thought that, well, most of the sales of my book describing this super imperialism were bought by the Defense Department and they looked at it as a how -to-do-it book. And I was brought down to the White House and the Defense Department to explain to them how imperialism works.

I had expected that maybe China, Russia, and other countries would say, “We don’t want to give America free rides.” And yet it was the United States itself that broke all of this, by grabbing Russia’s reserves right after it grabbed Afghanistan’s and Venezuela’s reserves.

Nothing like this has happened in modern history, even in the 19th century wars. In the Crimean War in the mid-19th century, Russia, England and Germany, everybody kept paying the debts to the countries they were fighting against because the idea is that debts were sacrosanct. And now, all of a sudden, not only are debts are not sacrosanct, but countries can just grab foreign savings. I guess the problem began after the Shah of Iran fell and the United States grabbed Iran’s money and refused to let it pay its bond holders and started the whole war against Iran for trying to take control of its own oil resources. So, all of a sudden, the United States grabbing this has ended what everybody thought was an immutable morality.

[So, since the Shah fell in Iran basically, the US has increasingly been using economic warfare - they call it sanctions but it's really coercive measures - and that's set the stage for today?]

Yes, the International Monetary Fund has operated, basically, as an arm of the Defense Department. It’s been bailing out dictatorships, bailing out Ukraine, lending money to countries whose client oligarchies America wants to support, and not lending any money to countries that America doesn’t want to support, like Venezuela. So, its job is basically to promote neoliberal policies, and to insist that other countries balance their payments by undergoing a class war against labor.

The conditionality that the IMF insists upon for foreign borrowing is that countries devalue their currency and lower their wage rates and pass anti-labor legislation. Well, when you lower the currency’s exchange rate, what do you really lower? Food prices are set in dollars internationally, raw materials prices are, and prices for machinery and many goods. The only economic variable devalued is domestic labor (and domestic rents). The IMF has been using this kind of junk-economic free-trade policy as a means of keeping the wage rates in the Global South down. You could say it’s a financialization of an ultimately military conflict to promote neoliberal ideology.

[And you mentioned lowering wages, which is favourable to US businesses and investors?]

It’s even worse than that. The central aim of the World Bank is to prevent other countries from growing their own food. That is the prime directive. It will only make loans for countries to earn foreign currency and it has insisted ever since about 1950 that countries that borrow from it must shift their agriculture to plantation export crops to grow tropical crops that cannot be grown in the United States for environmental and weather reasons. And the countries must not grow their own food and must not undertake Land Reform or small family-based farming. So, it insisted on foreign-owned agribusiness in large plantation agriculture. And what that means is that countries that have borrowed for agricultural loans have not been loans to produce their own food. It’s been to compete with each other producing tropical export crops while being increasingly dependent on the United States for their food supplies, and for their grain. And that’s part of the corner they painted them into that is going to be creating such a world famine this summer.

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