The United States is shooting itself with its own superweapon

The United States shot itself in the head with its own miracle weapon. The most powerful weapon in America's arsenal is not F-16 jets, Himar missiles, or any other conventional war toy. America's true power lies in the American dollar.

By increasingly weaponizing the dollar and gaining access to the dollar-denominated global trading system, the United States has used the greenback as a blowtorch that will trigger a final judgment. It is a classic example of imperial abuse of power.

This October, in Kazan, Russia, a series of countermeasures will be launched by BRICS countries that will fundamentally shift the global balance of power – not overnight, but as surely as night follows day.

“The danger of everything spiraling out of control continues to grow as ever more powerful financial weapons are developed and deployed. But no one seems to know how to deal with it. » – Underground Empire

The U.S. dollar is America’s golden goose, or, to use another animal analogy, its cash cow. The Bretton Woods system, established after World War II, made the United States the world’s bank. This was accompanied by a U.S. commitment to act as a neutral party when corporations and governments inject money into the dollar. Economists like Richard Wolff, professor emeritus of economics at the University of Massachusetts Amherst, point out that since the end of World War II, at no cost and with little risk of inflation, the United States has printed or digitally created trillions of dollars and bought products and services from around the world in exchange. This is the privilege that comes with owning the world’s reserve currency. Having been paid in U.S. dollars, those same trading partners then reinvest much of those dollars in U.S. Treasuries and other dollar-denominated instruments. It is a unique advantage that must be protected at all costs – Britain had one at its peak. Instead, America is destroying its unique competitive advantage by weaponizing the dollar and the global trading systems associated with it. Today, the majority of the world economy lives under the yoke of US sanctions or other coercive measures.

One of the most important books people should get is Underground Empire – How America Weaponized the Global Economy – by Henry Farrell, professor at Johns Hopkins and Abraham Newman of Georgetown University. Published in 2023, it offers a history lesson, case studies (Huawei, Iran, the Snowden moment, etc.) and a codebook to understand what it all means. Coercive measures being considered include embargoes, threats of being expelled from the international payment system Swift (the main mechanism for settling international payments), forcing major Internet service providers and other companies to transmit commercial information to US authorities, taking control of choke points in the country. the global Internet and financial systems to spy and intimidate, and use intellectual property and questionable law enforcement to effectively carry out hacking. All of them are linked to the power of the dollar.

By pressuring North Korea to (unsuccessfully) stop its nuclear weapons program, the United States learned the lessons it honed in its attack on Iran. One of the shocks was how successful they were in driving a mid-sized economy like Iran out of the global financial system. Other successes include the destruction of Huawei's business model, which dropped from 20% to 4% of mobile devices, and crippled its rise in the 5G market.

U.S. economic sanctions are now so widespread that most people haven't even noticed that the Moscow Stock Exchange, MOEX, was forced to cease trading in dollars and euros this month. This attracted little attention from Western media.

US sanctions were supposed to cripple Russia, turn Sevastopol into a NATO port, drive Russia from the ranks of the great powers and trigger regime change. The opposite has happened: the Russian economy has boomed and has now overtaken Germany in terms of purchasing power parity (a cross-country comparison tool used by the OECD, the World Bank world and other institutions). Putin, by all measures, including American research, is more popular than any Western leader.

This month, the G7 announced it would raise $50 billion in loans for Ukraine and pay bondholders with interest from Russian funds stolen by Western countries as punishment for the invasion of Ukraine. This may be an innovation, and many welcome this measure, but it also challenges the idea that putting your money in US dollars or euros is a sure thing. “Trust me, I'm an American banker” is not a convincing argument these days.

Dollar decoupling is moving at a pace few would have imagined possible. Twenty years ago, almost 70% of global reserves held by central banks were denominated in US dollars. This figure has fallen to around 50% and the downward trend is accelerating.

You may not like Iran, North Korea, Venezuela, or any of the dozens of countries currently under US sanctions. You may fully accept the Western narrative that the war in Ukraine was unprovoked and must be punished, or that China must be prevented from rising – but the reality is that any bank that seizes a customer’s assets at home scares anyone who has deposits.

Countries like Saudi Arabia, Turkey, Malaysia, Venezuela and much of the Global South – in other words, most of humanity – are cautiously looking for a way out. Moving away from the dollar is increasingly about risk reduction. Gold, a basket of other currencies and repatriation are increasingly attractive alternatives.

As of March 2024, China held $767 billion in U.S. Treasuries, approximately 10% of the U.S. national debt. Already subject to thousands of sanctions, China knows that the United States will do almost anything to stop its rise to power; and so, according to President Xi, he must build a system independent of American domination. There is a real danger of the world dividing into two systems.

This October, in Kazan, Russia, we could see major progress in creating an alternative trading mechanism to compete with SWIFT (the Global System for Interbank Communications), in creating institutions to replace the IMF and the World Bank – perhaps a new, expanded BRICS Development Bank (current capital base $100 billion) – and in bringing many more countries into the BRICS framework, which is rapidly eclipsing the G7.

Russian Foreign Minister Sergei Lavrov said: “A process has been launched following the last summit in Johannesburg. World leaders have asked their finance ministers and central banks to make recommendations on alternative payment platforms. So the process is ongoing and there is probably no way to stop it. »

Brazilian President Lula has suggested that CELAC, the Community of Latin American and Caribbean States, could use the new trading platform to protect its trade and economic relations from the abuses of the dollar. Some 30 countries have expressed interest in joining BRICS.

As Farrell and Newman said in Underground Empire“When you've built the economic equivalent of a nuclear arsenal, you shouldn't be surprised when others think about striking first or retaliating.”