The Changing World Money Order


World dominance is an issue that has always plagued world’s superpowers’ minds, with a power shift occurring every so often as the balance shifts from nation to nation. In our times, the United States has dominated the world stage both militarily and economically based on the US dollar being the reserve currency of the world. The US dollar is the bedrock of global economics, but with its nemeses growing in influence, it may be a question of when, not if, the balance of power shifts once again, as the concerned powers play a game of cat and mouse to develop alternate financial ecosystems and trade blocs to destabilize the US and uproot it from its position as a global leader.

As well as having its authority questioned internationally, the US is domestically facing a multitude of challenges that it is contesting with. The US real estate industry is faltering, inflation in the country is at a forty-year high, it has trillions of dollars of debt that continues to rise, its stocks and bonds markets are falling in value and most recently, its financial system is under great threat with problems in the banking sector. All of this points to fundamental flaws in the US system that have been brewing for years, putting it in a weak position and placing its hegemony under threat.

To comprehend how the United States attained such immense influence and power, it is necessary to revisit the Second World War. During this period, the United States produced a significant amount of military hardware and sold it to Europe in an effort to combat Nazi Germany. This stimulated the US economy considerably, assisting it in overcoming the economic fallout of the Great Depression. With post-war reconstruction on the horizon, the United States recognized an opportunity for the dollar to prosper. As victory approached, it established the Bretton Woods Agreement in 1944, which was a system of economic order agreed upon by 44 countries.

In order to encourage global exchange rate stability and foster economic growth, the basis of the agreement was to promote the US dollar as the world's reserve currency during what was a challenging period where many economies were devastated. This was accomplished by pegging currencies to the US dollar, which was in turn fixed at a rate of $35 per ounce of gold. By utilizing the gold standard, a fixed currency exchange was established to ensure that buying the dollar was equivalent to buying gold.

This was extremely beneficial for the US as international trade was conducted using the dollar, allowing it to build its influence and power. Vast amounts of gold were sent from around the world to the US Federal Reserve which allowed it to amass an incredible amount of physical wealth until 1971, when it was decided the dollar would no longer be backed by gold. The US kept the gold in its coffers and the world was left with paper dollars which led to huge inflation. In a bid to save the dollar, a new scheme was concocted which gave birth to the petrodollar where oil all over the world would only be bought and sold using the US dollar. This made it relevant on the international stage once more and has given the US a great deal of influence.

Fast forwarding to today, this influence is diminishing as numerous oil producing nations have expressed their willingness to trade oil in currencies other than the US dollar, including the Chinese Yuan. With less need for the US dollar, China does not need to have US dollars to pay for oil, thereby lessening its influence on China. If more countries stop using the US dollar for such transactions, it could have catastrophic consequences for the US currency. The petrodollar system only works as long as the US dollar maintains its prominence in global trade. This puts US dominance under great threat and it needs another plan to reassert its authority over geopolitical rivals such as China.

In 1945, the US had 80% of the world’s money through the gold it had amassed, accounted for around 50% of the world’s GDP and had a monopoly on military power which meant it could set the world agenda. Today, the amount of debt creation in the US is growing massively, leading to more paper dollars being printed, which is devaluing its worth and raising inflation. This is being accompanied by a feeling of disenfranchisement with the gap in wealth and values growing, leading to increasing populism; resulting in the hardening of positions and dividing the people even more, raising the prospect of them taking up arms against each other to defend their beliefs. I believe we saw flashes of this during the Capitol Hill riots and with those that reject the view that Democrats won the previous election. This internal conflict is a significant sign of destabilization and weakness.

Meanwhile, it can be argued that China is as strong as the US which will lead to a natural struggle for world power. China is working hard to build its own narrative and relationship with its allies, particularly Russia, as can be seen during the recent visit of President Xi to the country. It is evident that he is looking to develop warm and cordial relations with Putin, with Xi himself promising “an all-encompassing partnership and strategic interaction,” in a world threatened by “acts of hegemony, despotism and bullying” – clearly in reference to the US.
Other forms of war including economic, technological and political are already well underway and can be seen as precursors to the inevitable. The historical cycle of a change in world order shows that there is a myriad of sub-wars between the two opposing superpowers, which eventually ends up in military conflict.

Talal Abu-Ghazaleh