Currency of Fear

von | 22. Mai. 2024 | English content

Money is an anthropological phenomenon difficult to explain, as it combines radical forms of reification and symbolisation: it is a thing (gold, silver, paper) that represents a value, and also a value (Athenian tetradrachm in 300 BC, Florentine florin in 1300, Spanish doubloon in 1600, American dollar in 2000) that represents purchasing power over real things. If we follow Simiand or Schumpeter, the best definition of money is simply that of ‘credit’: an abstract, divisible and endorsable title to property. However, this kind of ‘credit’ is not issued by any particular individual, but by a political authority with the capacity of violence, and therefore of levying taxes under threat. We speak here of the state.

As numismatics can attest, with its long parade of profiles of kings and emperors, coins are rarely private creations, and very often creatures of the state. Thus, the primitive purpose of money in traditional societies was to facilitate and lubricate the logistics of armies, preventing the state from mobilising a heavy contingent of food and services behind each legion. This function was now left to the diligent improvisation of local merchants.

Despite the passage of time, the relationship between money and army, two monopolies of the state, has not lost its importance in modern societies. Proof of this, as economist Michael Hudson argues, is the network of 800 US military bases around the world, whose origins date back to the post-war occupation of Germany and Japan, and later to the Korean and Vietnam wars. Ironically, the dollars that the US sends to its bases, currency that is soon recycled in peripheral central banks as US Treasury bonds, have allowed the dollar itself to expand its monetary base by having a savings anchor in third countries, thus preventing an inflationary escalation of American fiat money.[1]

Another interesting symbiosis between imperial war and fiat money, albeit much more mysterious, is that of the fear induced by war propaganda in investors, who revalue the dollar through irrational hoarding, thus allowing the printing presses to move again and create new trillions of dollars out of thin air. The process in question, hitherto typical of what used to be called ‘military Keynesianism,’ has lately been replicated with an unprecedented fear: that of a new global virus. No surprise, then, that the dollar revalued after the COVID outbreak, while commodity prices and other currencies experienced a parallel decline. [2]

Hence, perhaps, the reason why the US, unlike traditional empires, is much more interested in perpetuating wars than in winning them. Not in vain, from Saigon to Kabul, the bottom line of US wars has not been victory but the tragicomic vignette of the ‚last helicopter‘: the sudden disengagement of American forces, abandoning victory to poorly armed partisans and guerrillas. In any case, every American war means a leap in its public debt, which is nothing more than more dollars being issued, as well as subsidies to the technology sector and the expansion of its entire bureaucracy. Put in perspective, America’s wars are the system of pumping liquid money into the global market, and also a mechanism for the appreciation of that same money, which would otherwise drown in its own inflation.



Triffin’s Dilemma


Money, like all social constructs, unfolds over time. Thus, money can either be actualised in an immediate purchase, or it can be kept for a subsequent exchange. The latter action is nothing other than the embryo of capitalist accumulation. Indeed, contrary to the fable of Say’s Law, which assumes a perfect circuit between instantaneous buying and selling, a barter of like with like without the involvement of money, the mainspring of capitalism is the accumulation of huge masses of abstract currency. In doing this, capitalism paradoxically impedes the development of the market by rendering money scarce and making transactions of goods and services difficult. The industrial dream of Marx, who thought that productive investment had displaced usury, was just that: a dream.

But who creates money? Until the First World War, money was still anchored to gold, but the war payments crisis in London, the centre of the international gold standard, forced Britain to unilaterally unplug sterling from its gold equivalent. From then on the only backing for the pound was its own pound-denominated bond at a certain interest rate: a purely circular exercise, making the value of money its interest rate, which could be set at the Bank of England’s discretion. This de facto situation was replicated by third countries, leading to a global race in which each country devalued its own currency in order to increase its exports and get out of the post-war depression as quickly as possible. The crisis of the gold standard, and the lack of a new monetary hegemon to replace the pound, contributed to the dislocation of the international market, and the emergence of fascist and Soviet autarkic projects.

In a sense, World War II was the result of the lack of a global reserve currency, which led to a scramble between old and new empires to consolidate captive markets and capture territory and resources. Diplomatic efforts by the West to create an international payment system to replace the gold standard, which also aimed to facilitate the flow of the onerous war reparations imposed on Germany, were finally of little use. The project frustrated with the Genoa Accords of 1922 was only revived at Bretton Woods in 1945, but this time the focus shifted from the pound to the dollar, while the new reparations policy towards Germany was to be much more lenient. [3]

The real dollar empire begins here, with America as the largest creditor economy and accounting for more than half of the world’s industrial capacity, emerging virtually intact after two world wars. However, the political fixation of 36 dollars per ounce of gold, and the seizure of all metal from private citizens except dentists, was far from resembling the old English gold standard in which metal and political currency fluctuated more or less freely.

To begin with, there was the emerging problem of reconciling the interests of America as a ‘national economy’ with those of the new imperial project of Washington and Wall Street. In practice, if America was to provide sufficient liquidity for international trade, it had to sacrifice part of its national economy’s exports at the same time, for too many American exports meant withdrawing dollars from the global market and thus hindering the flow of trade. On the other hand, even if it issued enough liquid money, an overabundance of dollars could devalue it and make it unattractive as a means of savings for third countries. Worse still, an abundant dollar would make American domestic exports cheaper, inhibiting the development of European industry, an area threatened by a then vigorous communism. The result was the dollar’s inherent turbulence and Washington’s need to resort to both diplomacy and force to secure its national money as an international currency.

The internal tensions peculiar to any reserve currency were first identified by the Polish economist Mlynarsk in 1929, and then made famous by his Belgian colleague Triffin in 1960. The latter stressed that if the dollar serves as the world’s reserve currency, the United States must also be willing to furnish the markets with an additional supply of its own national money, which necessarily leads to a trade deficit and, we may add, eventually to de-industrialisation. [4]

The balance soon tipped in favour of the financial globalisation project, and thus American elites chose the gradual hypertrophy of Wall Street and the underdevelopment of their own manufacture, even affecting the quality of their military apparatus. Plausibly, the transition from an industrial creditor economy to a financial one that simply recycles debt occurred with the Vietnam War. During this period America relied on imports of household durables and automobiles from Europe and Japan, partially immolating its industrial sector. However, at the same time Washington guaranteed its role as planetary police and monopoly issuer of reserve money: the printing press and the bomb.

Consequently, when Europe wanted to charge its exports in gold instead of the dollar, Nixon limited himself to liquidating convertibility with a stroke of a pen, and effectively establishing the shell game between liquid dollars and treasury bonds. Conversely, when in the 1980s American industry demanded protection and a cheap dollar for its exports, Japan, a minor associate, saw its competitiveness curbed by the Plaza Accords, an instance that overvalued the yen to render Japanese products more expensive. The lesson seems clear. No market’s invisible hand so far, but instead the fist of hard diplomacy. Legend has it that in 1965 Charles de Gaulle sent his Navy to pick up the gold bullions long overdue to France at Fort Knox. Rather predictably, the Géneral was toppled by a CIA-orchestrated juvenile insurgence three years later, May 1968, perhaps the first ‘Colour Revolution’.



Empires of Paper


Currently, the U.S. dollar is the most traded and saved currency, accounting for 59 percent of the world’s foreign exchange reserves. Furthermore, BIS indicates that American domestic currency was bought or sold in about 88 percent of global foreign exchange transactions until 2022. No less important, the Treasury bond market is the most liquid and massive of all sovereign debt papers, comprising $51.3 trillion through the same year. Curiously enough, COVID paranoia has further exacerbated the gravitational pull of dollar as an emergency safe haven for legions of investors, speculators and central banks.[5] The paradox is blatant: US dwindles in real production, its wars become expensive and sloppy, its diplomatic prestige eclipses, but American cash rules supreme.

Additionally, old greenback’s hegemony permits the United States to impose heavy costs on political adversaries through sanctions. Thus the cases of Russia and Iran, both countries under the expropriatory menace of freezing their funds abroad, whether in the vault of other countries’ central banks or in the meanders of SWIFT network. Indeed, the extraterritorial power of dollar is highly problematic, and may self-sabotage the very existence of American monetary world monopoly. At present, China holds trillions of dollars in public and private savings, being the major creditor of US, and despite all Washington has selectively embargoed Chinese assets, invoking Beijing’s assistance in Iran’s missile program or else industrial piracy by Huawei. The hegemon’s bullying behaviour has spurred a series of initiatives to develop ad-hoc reserve currencies on a regional level, or even employ non-dollar money in bilateral trading in the Global South.

The question is: besides the built-in contradictions of the dollar as international means of exchange and reserve, namely the known ‘Triffin Dilemma’, do Washington’s sanctions add new dysfunctions to the whole mechanism? The reasoning is not necessarily linear. For example, some commentators point out that the expectation of sanctions on a country may cause its central bank to accumulate larger dollar reserves, in order to compensate for the losses of foreign investors who legally sue the host state: such could be the situation of medium-sized countries such as Colombia or Kenya. However, it is different for continental-sized economies such as Russia or China, which have much more room for maneuver.[6]

China in particular seems to hold the keys to the new monetary multipolarity. That is, of course, if the Middle Kingdom decides to install its own currency as a global store of value, which would perhaps require officially linking the renminbi to gold. Such a convertibility strategy seems feasible, although China is the sixth largest gold hoarder with 2,000 metric tons, compared to more than 8,000 tons in the US. But the career is still open. In fact, recent data confirm China’s solid tendency to buy gold by the shiploads, whilst it gradually gets rid of its dollar savings: otherwise a massive sell-off would trigger a downward stampede of the dollar-denominated assets.

Same with Russia, the fifth hoard of bullion, though the Moscow’s predicament is still thornier, since the Great Bear wages an oblique war against the West in the Ukrainian theatre. Even so, public banker Andrei Kostin of VTB, Russia’s second-largest bank, was optimistic that the Kievan crisis ‘was ushering in radical changes in the world economy, undermining globalization just as China was becoming the world’s leading economic power’ (Reuters, Jun 13, 2023). In the same vein, the Atlanticist outlet Foreign Policy reports (April 24):

‘Talk of de-dollarization is in the air. Last month, in New Delhi, Alexander Babakov, deputy chairman of Russia’s State Duma, said that Russia is now spearheading the development of a new currency. It is to be used for cross-border trade by the BRICS nations: Brazil, Russia, India, China, and South Africa. Weeks later, in Beijing, Brazil’s president, Luiz Inàcio Lula da Silva, chimed in. “Every night,” he said, he asks himself “why all countries have to base their trade on the dollar?”’

Lula’s savvy retort sounds quite reasonable, but reality is always messier.[7]




Black Gold


Oil is the lifeblood of world commerce, at least since the British Admiralty switched from cumbersome coal to lighter oil to power battleships in the 1910s. The innovation was not self-evident at the time, in part because of the abundant and cheap British coal and the scarcity of indigenous sources of oil. However, the advantages of the latter were seductive. The new fuel allowed offshore refueling, thus extending the Royal Navy’s range and speed of movement, and also reduced onboard manpower costs. It was thalassocracy re-energised.

Likewise, oil would start the fortunes of the first Rockefeller, son of a peddler of cure-all elixirs, and the Samuels Brothers’, owners of Shell company, which was hitherto engaged in the modest trade of sherds of seashells. The automobile would do the rest: igniting the vertiginous race of a civilization in perpetual metabolic hunger. Moreover, oil recreated Islam according to the needs of the West, and also modeled much of the geopolitical landscape, from capitalist Texas to communist Baku. Indeed, today it seems odd that none by then has conceived the idea, after the collapse of classical gold standard, of establishing convertibility between currency and oil. The impromptu solution only appeared as late as 1974, and again it occurred as a consequence of warfare. It was the serendipitous birth of the petrodollar.

Yom Kippur War, the sixth conflict waged by US-backed Israel against its Arab neighbors, was retaliated by crude producers with an embargo that quadrupled fuel prices, triggered inflation, crashed the stock market and plunged the global economy into severe crisis. In response to the challenge, the United States sent the Secretary of the Treasury, William Simon, to the Middle East with the express mandate of neutralizing OPEC countries. The first task was to impede the use of oil as an economic weapon. The second, to get Saudi Arabia to finance the galloping US deficit by buying huge amounts of debt with the surplus of dollars with which Riyadh was drowning.

Simon’s diplomatic endeavour proved a brilliant success. American bargain included, of course, arms and intelligence galore. In turn, Riyadh pledged to peg its oil exclusively to the dollar. Hence a new oil-dollar standard, once the Bretton Woods gold-standard had recently collapsed. Eventually, the decade of oil-induced stagflation of 1970s matured into the decade of neoliberal reform of 1980s, marking the pass of US from net creditor to net debt country, though Washington still maintained world seigniorage throughout the period. Nevertheless, by this time monetary hegemony was based, rather than in national industrial power, on the cooptation of a third country’s energy monopoly.




Towards digital seigniorage?


Available indications suggest that China, which has been the largest importer of oil since 2015, could raise its own petroyuan against the petrodollar and contest Washington’s dominance of world markets.[8] As expected, the transfer of ‘monetary rent’ from one hegemon to the next rival need not be a peaceful affair: saber-rattling looms everywhere, especially around vassalized Taiwan. However, a parallel development goes unnoticed thus far. It concerns the implementation of a ‘global bitcoin’ based on blockchain technology and surveillance algorithms: the so-called CBDM (Central Bank Digital Money), a project endorsed and broadly touted by both IMF and BIS.

Nothing prevents us from thinking that rentier elites may engage in the controlled demolition of ‘national banknotes’ such as the dollar itself, astronomically expanding their volume and concomitantly fatting public debt, as they channel superfluous cash into ‘front companies’ that seize real assets, for example agricultural lands or monopolistic resources. After all, the trend is quite palpable in the ‘piratization’ of Ukraine’s economy. Regardless, it is a matter of speculation that Beijing, instead of facing a nuclear war to decide the future of global seigniorage, may accept an agreement with the parastatal agencies of Atlantic high finance, and thus explore a synthesis solution, starting with the pioneering ‘digital renminbi’. In that case, we can envision a Weimar-like hyperinflation for the dollar as the US nation-state morphs into an archipelago of lumpenproletariat inner colonies of Wall Street.

Historically, we can discern a dialectic of polarization in capitalism between, so to speak, its hardware and software stages. Once the industry matures, the institutionalization of class struggle and the slowdown of technological change ensue. At this juncture, high finance (‘software’) escapes from its former manufacturing shell, relocates elsewhere and restarts the process of accumulation. Venice, Holland, Britain are now old shrouds of past industrial emporiums, and so the US would repeat the same design, whilst ethereal capital, fashioned as pure virtuality, disembodied quantity, vampirize a fresher host milieu.


[1] David McNally, Blood and Money, Fernwood Publishing, 2020.

[2] Radhika Desai, Geopolitical Economy. Geopolitical Economy After US Hegemony, Globalization and Empire, Pluto Press, 2022.

[3] Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary, Oxford University Press, 2011.

[4] Olivier Jeanne, The Triffin Dilemma and the Saver’s Curse, Johns Hopkins University September 2011

[5] Claudio Soto et alii, ‘Global appreciation of the dollar due to the effects of the coronavirus take the exchange rate to its maximum level since the start of Central Bank intervention’, Market Outlook, Santander Bank, February 21, 2020.

[6] Javier Bianchi, César Sosa-Padilla, ‘International Sanctions and Dollar Dominance’, Working Paper 31024

[7] Joseph W. Sullivan, ‘A BRICS Currency Could Shake the Dollar’s Dominance. De-dollarization’s moment might finally be here.’ Foreign Policy, April 24, 2023.

[8] Sybilla Gross, ‘China’s Central Bank Adds More Gold for a Ninth Straight Month,’ Bloomberg, August 7, 2023