Ian Bremner argues convincingly that the American Dollar remains embedded as the global reserve currency since: “you can’t replace something with nothing”. Nevertheless, intensifying US misuse and abuse of the dollar’s standing has expanded the worldwide search for one or more “alternative somethings”. Now an intriguing argument has been advanced that a central reason Western scolding of China remains so incessant is to help protect the vulnerable dollar.
Emeritus Professor Francis Lui, Ting Ming, a leading economist, was previously Director of the Centre for Economic Development at the Hong Kong University of Science and Technology. He is now a Chair Professor at the Macau University of Science and Technology. He continues to provide insightful commentary, in Chinese, on economic and political issues (see, for example: https://bau.com.hk/article/2024-03/22/content_1219677197750857728.html (translatable using Google Translate)) .
In a presentation in late March, he asked: Is the US constantly badmouthing China’s strategy just to maintain the hegemony of the US dollar (see: https://www.youtube.com/watch?v=xsH_-Lufddg). He concluded that a key reason for the intensifying, US-led, Western media commentary belittling China is the rising vulnerability of the US dollar and the perceived need to shore-up its long-dominant global currency role.
The key vulnerabilities, according to Professor Lui are: the huge, increasing indebtedness (local and foreign) of the US and its massive, significantly debt-funded recurring expenditure related to defence, high-priced medical care, servicing pensions and rising interest expenses. Additionally, long-term retirement and medical commitments exceed $100 trillion.
America’s public debt currently exceeds $34 trillion (around 130% of GDP) and it is presently increasing at over 8% per year. Some 24% of this debt is owned by foreign states and entities. Singapore is even more indebted (compared to GDP) than the US, as Professor Lui notes, but it primarily uses borrowed funds for tangible investments rather than to fund recurrent expenditure. The rising interest payments on US debt today total nearly $900 billion annually, which CBS News reported almost exceeds the massive, annual defence budget.
Meanwhile, China-bashing is intensifying within the Global West generally and especially across the Western media. Stephen Roach, of Yale University (former chairman of Morgan Stanley Asia) confirmed this in a recent article where he argued that: “Sinophobia in the US is off the rails and blocking paths to progress”.
Next, Wang Wen, Executive Dean of the Chongyang Institute for Financial Studies at Renmin University in Beijing lately noted how the Western marketing of a China Collapse storyline dates back some 35 years but there has been a major escalation of this negative US-led narrative since early 2023. For example, the Chinese language Website of the Wall Street Journal published more than 160, Chinese economic-slowdown articles over the six months from August 2023, helping to foster media narrative-replication in the US – and in the EU, Japan, South Korea, India and beyond.
Moreover, the US has increasingly threatened – or actioned – the confiscation of Western currency foreign exchange reserves belonging to US-branded, geopolitical-apostates including, most recently, Afghanistan and Russia. This is akin to having a bank manager who threatens to punish general customer misbehaviour – adjudicated by the bank manager – with confiscation. Unsurprisingly, a growing number of US dollar “customers” are feeling a touch rattled.
But what really lies behind this strategy of running down China to protect the US dollar?
Professor Jeffrey Sachs (drawing on a 2015 article written for the US Council on Foreign Relations) recently emphasized how America believes that, “preserving US primacy in the global system ought to remain the central objective of the United States’ grand strategy in the twenty-first century”. In fact over 30 years ago, by 1992, this America global dominance project had already been spelled out in a secret Washington plan (leaked to the New York Times) to secure and maintain indefinite, worldwide American ascendency.
Meanwhile, Jonathan Cook has acutely spelled out the particular role the dollar plays in this open-ended, global control scheme:
‘[T]he US enjoys the manifold benefits of having the world’s principal reserve currency, pegging prices – most importantly energy prices – to the dollar. That does not just help reduce the costs of international trade for the US and allow it to borrow money cheaply. It also makes other states and their currencies dependent on the stability of the dollar, as the UK has just found out when the value of the pound plunged against the dollar, threatening to decimate the business sector.”
“But there are other advantages for the US in dominating global trade and currency markets. Washington is well positioned to impose economic sanctions to isolate and immiserate states that oppose it, as it is doing to Afghanistan and Iran. And its control of the world’s main financial institutions, such as the IMF and World Bank, means they act as little more than enforcers of Washington foreign policy priorities before agreeing to lend money.”
So, slippage of dollar supremacy is a pivotal concern in Washington. It needs that supremacy to sustain its massively debt-dependent municipal economy and its exceptionally expensive, habitually war-based global role. Still, as Bremner says, “[E]very time turmoil roils global markets, the dollar strengthens as investors flock to the most plentiful and liquid safe assets in existence.” Clearly turmoil tends to support dollar-strength.
It is possible, however, to stir-up your own turmoil. Thus, scare-mongering using multiple, fortified versions of the China Threat storyline can, today, work to protect the status of the dollar – as Professor Lui has sharply observed. But we may fairly inquire, for how long and, as Michael Edesess has recently asked, at what grave, ultimate cost.
Richard Cullen is an Adjunct Professor in the Faculty of Law at the University of Hong Kong. He was previously a Professor in the Department of Business Law and Taxation at Monash University in Melbourne, Australia.
Contributions to Pearls and Irritations
Your contribution will fund quality independent comment and analysis in Pearls and Irritations
Contribute
