https://www.cnn.com/2023/10/23/business/javier-milei-argentina-dollerization-explainer/index.html
Such a move would effectively disband Argentina’s central bank, handing the reins of monetary policy — that is, the power to set interest rates and print more money — over to the US Federal Reserve. The Fed would continue to set the cost of borrowing based on the needs of the US economy, not Argentina’s.
Milei has argued that surrendering autonomy to Washington is a necessary step to instil discipline into Argentinian policymakers. It would mean Argentina would no longer be able to print money.
In good faith, it is this line of thinking from the anti-imperialist left that scares me the most.
The key to defeating US imperialism is dedollarization, and China/BRICS/BRI are doing anything but that. I had a lot of hopes last year with all the talks about dedollarization, but you’ve probably noticed that not much radical solutions are being brought up during the BRICS summit in August. Why? Because everyone has now realized how difficult it is to dedollarize, and BRI/BRICS+ are doing exactly the opposite by dollarizing the world.
To understand this, we need to go back to the beginning (I will simplify it as much as possible to save space here).
BRICS is effectively doing the same thing, and now it has been expanded to 11 countries, which means more countries are being dollarized as they finance projects to build infrastructure and industrial capacity, even though the terms are much better than the IMF with low interests and doesn’t demand privatization.
The end goal is the same: America gets free lunch by using China/BRI/BRICS+ to industrialize the Global South.
I’ve seen anti-imperialist bloggers claiming that the “true underlying goal” of the BRI is to flood America with cheap goods from all the recently industrialized BRI countries to destroy domestic American industries. Well, if that’s really what the Chinese planners are thinking (and I sincerely hope this is not the case), then they’re in for a big surprise: America wants to be flooded by cheap goods from the BRI/BRICS countries. America has no intention of re-industrialization and it does not give a damn about de-industrializing itself to push wages even lower for American workers.
So, why might the Chinese (or other BRICS+ countries) think this might be a good idea? For one, many of their economists have been educated in Western neoclassical school of economics, which have indoctrinated them to a faulty understanding of how the monetary system works. The neoclassicals (neoliberal adherents) still believe that the US couldn’t simply “print” so much money because of its enormous national debt. Well, Covid proved this completely wrong: the Fed balance sheet went up from $4 trillion to a gigantic $8.5 trillion (!!) since the Covid pandemic in 2020 (Figure 1). America absolutely has the capacity to keep “printing” the money to get free lunches from everyone, as the BRI/BRICS+ countries continue to be industrialized and need to sell their goods to earn US dollars to pay back their Chinese creditors.
Figure 1. Fed balance sheet as of October 2023
The real question is how can the world actually dedollarize? We can brainstorm a few scenarios but none of them are ideal/clean, because the system is setup in such a way that anyone who wants to decouple from America will have to pay a high price for it. Almost every “good” scenario demands that China forgives hundreds of billions of their dollar loans to the developing countries, which they had accumulated over the decades with their own labor and resources.
For example, China can use its dollar reserves to pay off the African continent’s dollar debt ($850 billion), then flood Africa with RMB in order to replace the dollar as the reserve currency in the region. However, this requires that China to give up its role as a net exporter country and run a trade deficit with Africa - this means that China has to buy more goods from Africa than they sell them to. And it doesn’t look like China is ready to do this anytime soon because the inevitable outcome is the deindustrialization of China itself.
This was the fate of America trying to sustain the Bretton Woods system from 1944-1971 as the global reserve currency (Triffin’s dilemma) and running a persistent trade deficit ultimately resulted in the deindustrialization of America during the process.
Since none of the BRICS+ countries wants to run a trade deficit (they all want to be net exporters), the US dollar remains the most viable reserve currency that none other can simply replace. There have been a lot of movements of bilateral trade using local currencies (for example, Russia and China) in the last year but this isn’t a major axis of dedollarization. First, trade only accounts for a small proportion of the dollar usage, the vast majority of the dollar is in investment and as financial instruments. Second, many commodity price indices still remain in dollar, even though countries trade using their local currencies. These efforts shield the respective countries from US sanctions but they don’t solve the deeper problems about dedollarization.
For example, Russia tried to do this last year and sold a huge quantity of oil to India and collected so much Indian rupees that they literally don’t know what to do with them, since the only way they can use the rupees is to purchase Indian goods, of which there is not a lot of options for the Russians. Now they’re asking the Indians to pay in Chinese yuans, and the Indians refused. This is why everyone uses and prefers US dollar.
And finally, I do want to clarify that I fully support the goals of BRI and BRICS+ efforts to bring a more equitable and fair economic system to the Global South. However, it needs to be reminded that they are up against an opponent that has every advantage in the fight and is not afraid to play dirty at all. Radical solutions need to be found before this window of opportunity closes. I will be the first to admit that I don’t know how to solve this very difficult problem, and can only hope that the experts from the BRICS+ alternative know what they’re actually doing.
Forgive my naivety, but why must countries repay the dollar debts in kind? Can't they mutually agree to repay in yuan?
Another point, if America further deindustrialized, isn't that a net advantage for China? It doesn't matter if America reaps all the rewards of treats produced in the global south, the outcome is that the means of production are not with them.
This question is how are they going to find the yuans in the first place? China wants to be a net exporter country and run a current account surplus, which means unlike the US dollar, there is never going to be enough yuans floating around for everyone to store as reserve currency, and this means the only way to earn those yuans is to export your goods and commodities to China. But as I have said, since China wants to be a net exporter country, you are also directly competing with Chinese industries and workers - why would China buy your stuff instead of their own?
America doesn’t have this problem because it is a net importer country and runs a current account deficit. It can keep “printing” dollars as needed to import stuff, which also means a vast liquidity for others to store as a reserve currency. This is why many countries decided to take on the loans in dollar in the first place.
This is not to say there aren’t loans in yuan, there are but not nearly enough to challenge the deep investment market of the dollar.
The answer to this is ideological in nature. America believes that it can retain its hegemony simply through financial means while fully deindustrialized, whereas China believes that the means of production that produces tangible goods/services (industrial capital) is the real stuff that matters.
As Michael Hudson has always said, the conflict between US and China is not so much a geopolitical conflict but when understood at a higher level, an ideological one between finance capitalism and industrial capitalism, and only the latter could create the conditions to transition into socialism.
This is where the battle lines are being drawn as the US and China ramp up toward their ultimate showdown. I cannot tell you which side will prevail but we will likely find out the answer in our lifetime.