De-dollarization of The World Economy: Don’t Fixate On Money!

The de-dollarization of the world economy was a central theme at the April 15-16 Schiller Institute international conference (cf. above). While deals have already been struck among several nations to use national currencies in bilateral trade and investments, deliberations are also ongoing on how to create a reserve currency that can replace the dollar in international exchanges, in reaction to the “weaponization” of the U.S. currency (such as the seizure of the currency reserves of Russia and Afghanistan). As we reported, this topic will be taken up at the next BRICS meeting in the summer (SAS 14-15/23). Over 30 countries have started to use the yuan in bilateral exchanges with China.

In this context, Brazilian President Lula’s trip to China takes on added strategic importance (cf. below). Banco Bocom BBM, a traditional Brazilian financial institution controlled by strong Chinese banks, became South America’s first participant in China’s Cross-Border Interbank Payment System (Cips).

Although the yuan overtook the euro to become the second most important currency in Brazil’s international reserves, according to a Central Bank report at the end of 2022, the dollar remains dominant, at 80.42% of the total.

In his keynote speech to Panel 3 of the SI conference, EIR Ibero-America editor Dennis Small addressed the problem, warning that 1) the US should also “de-dollarize”, by dumping the “Wall Street Dollar” and 2) any new reserve currency must be based on and supported by development of the physical economy.

The latter is the most difficult question for academics to understand, who tend to be captive of statistical-mathematical methods of determining value. Dennis Small referred to a key paper written by Lyndon LaRouche in the year 2000, entitled Trade without Currency – On a Basket of Hard Commodities, written as an answer to then ongoing discussions on a new monetary system, in which LaRouche insisted that before discussing any currency parities, the entire IMF economic system should be replaced by a set of agreements for development projects. Only a development policy, and not gold or any currency basket for itself, can guarantee monetary stability.

Referring to the 1945-1965 Bretton Woods System, LaRouche explained what had constituted the strength of the U.S. dollar as a reserve currency, within the gold-reserve system, which worked, “because it was defended by protectionist and related regulatory measures, both internationally, and within the relevant nations themselves. It was the physical strength of the U.S. economy… measured in terms of rates of growth of physical productivity per capita and per square kilometer, a strength expressed as periods of high rate of increase in hard-commodity forms of capital formation, which was crucial for the way in which the U.S. economy performed during the initial two decades of the post-war monetary system. This physical strength, matched with war-torn Europe’s needs for both expanded volumes of U.S. agricultural products and machine-tool categories, enabled U.S. credit to stimulate a rate of growth of physical productivity, per capita, in western Europe, a growth from which Europe obtained the means to meet its obligations to the U.S.”