Hiroshima and Nagasaki were largely destroyed in the blink of an eye. And the Japanese had no choice but to surrender to the Allies, finally ending World War II.
Ever since, world superpowers have been rapidly advancing weapons technology, constantly raising the bar for destructive power.
I’m talking about the US dollar.
The US is still the world’s dominant superpower, still the largest economy in the world. And the US dollar is still the world’s dominant reserve currency.
· When Saudi Arabia’s state-owned oil company sells petroleum to the Chinese, that transaction takes place in US dollars.
· Last year when Air France (a European airline) agreed to purchase 60 jets from Airbus (a European aircraft manufacturer), that contract was negotiated in US dollars– even though both parties are European!
· When commodities traders buy and sell cotton futures on the national mercantile exchange… … those trades are settled in US dollars.
· When the IMF stepped in to bail out Argentina back in 2018 with an emergency loan, those funds were paid in US dollars.
· And right now as I write these words, the Chile-based agriculture business I founded several years is selling literally millions of pounds of blueberries to wholesale buyers in Europe and Asia. Those deals are also closed in US dollars.
The US dollar is at the center of global commerce. Commercial banks, central banks, governments, sovereign wealth funds, and businesses around the world all need US dollars if they expect to be able to do any business internationally.
And that’s what makes the dollar such a powerful weapon: the US government can threaten foreign countries with nearly total financial collapse.
In their efforts to track down terrorist organizations and obtain intelligence, the Treasury Department began strongarming foreign banks to hand over financial information about suspected terrorists by threatening to revoke access to US dollars.
The threat worked. And a new weapon was born.
In 2010, they made some serious upgrades when Congress passed the Foreign Account Tax Compliance Act, known as FATCA.
And if these foreign banks refuse to comply? You guessed it. They’ll lose access to US dollars.
We’ve continued to see the US government rely on this tactic more and more over the past ten years; in 2015, for example, the Treasury Department famously hit French bank BNP Paribas with an $8.9 billion fine.
BNP’s egregious crime? They were doing business with countries that the US government doesn’t like– countries like Cuba and Iran.
But wait a minute. BNP is a FRENCH bank! France has no beef with Cuba or Iran!
Doesn’t matter. Uncle Sam doesn’t like Cuba and Iran. BNP did business with Cuba and Iran. So BNP was punished.
And if BNP didn’t pay this ridiculous $8.9 billion fine? Yep, you know what’s coming– they’d lose their access to US dollars.
Now, it was just a non-binding resolution anyhow, which means it was just politicians making a bunch of noise. But the US government hit back, threatening Iraq with the loss of US dollar access if they went forward with the idea.
It’s a powerful weapon that, unlike bombs and drones, causes no loss of life.
Frankly they’re starting to look like a bunch of rowdy teenagers in skeleton costumes beating up a weakly Ralph Machio.
And every time they loudly threaten another country or foreign bank with losing US dollar access, they’re essentially daring the rest of the world to come up with another option.
But people can only be threatened so many times before they start working on a solution.
In many respects it’s already happening. Countries like Russia and China are already engaging in trade with one another without the use of US dollars. And more and more governments are starting to hold Chinese renminbi as official reserves.
so there’s not going to be any major change for at least the next several years.
They’ve learned that the US government is happy to weaponize its currency… so, fool me twice, shame on me.
And it has changed many times throughout history– from the Roman solidus to the Spanish .
And at some point in the future when the US loses its dominant reserve status, historians will look back and realize they did it to themselves.