Most of the world’s trade is done in dollars, even for trade that never goes to the US.
Most of the world’s money transfers at some point go thru the western banking system, and quite often an American bank, even if both parties are not in America. This is how the US justified its’ anti-FIFA case: the bribes, though at never point involving any Americans or going to America, at some point went thru a US bank on their way to their target.
Everyone needs (or needed) dollars, and everyone needed the Western banking system. There was no real alternative, and to a large extent there still isn’t.
But that has been changing. Russia (SFPS) and China (CIPS) built their own interbank messaging and transfer systems to replace the West’s SWIFT. They have started to connect them together. Since the Ukraine war in particular, China and Russia have been encouraging countries to settle trade in local currencies, and oil has been sold in rubles and yuan (previously, with a few rare exceptions it was always in dollars.
This is called dollar privilege. It has disadvantages, but because everyone needs dollars and because a ton of world debt is denominated in dollars and because the interbank transfer system is controlled by the West (SWIFT is actually located in Europe), America has been able to command far more of the world’s resources than it otherwise would have been able to. Of course this is backed up by US and allied military power, and it was possible to create it because after WWII the US was both the greatest military power and the largest industrial power.
Still, while it was definitely abused during the cold war period, and more than once, it was after the collapse of the USSR that America really went wild with sanctions.
But the most important thing about dollar privilege is not the ability to sanction, it’s the ability to settle all debts in dollars, which everyone needs.
What happens when everyone doesn’t need them? What happens when the US actually has to pay, somehow, for what it consumes?
Though losing dollar privilege is second order, downstream from losing industrial and military dominance, and has been moved forward by the abuse (and failure) of the sanctions system, it will still be a massive blow to America. Put simply (and with some exceptions), America will have to live on what it can actually make and grown and what it can trade for with what it makes and grows. Well, and what it can steal with its still strong military.
This will be a massive blow.
It will also be an opportunity of sorts. Dollar privilege let the US command more of the world’s resources than otherwise, but it also made the dollar worth far more than it should have been, and thus increased costs in America. In principle (though hard to do in practice) the US dollar collapse caused by the end of dollar privilege would make American goods and services much cheaper overseas and improve the US terms of trade, allowing more manufacturing in the US.
In principle. In practice, the collapse in ability to command resources is likely to lead to economic collapse, and only a very savvy leadership class will be able to navigate the issue, at least in a timely manner. In the longer run, America is still a continental power and if it doesn’t split up, the country has significant advantages which may allow it to survive and even be moderately prosperous.
But when you see moves by the BRICS to create their own multinational interbanking system, and moves away from the US dollar, understand that what you’re seeing are attempts to end US hegemony; attempts which will have shattering effects on the US economy.
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