The Prospects of International Trade Outside the Dollar-Based System

Chas Freeman is among the most experienced U.S. diplomats, who accompanied U.S. President Richard Nixon as his interpreter during his historic visit to China fifty years ago. In the last issue of our newsletter we published excerpts of an interview he gave to EIR’s Mike Billington dealing with strategic issues. In addition, he addressed the question of an alternative to the dollar-dominated monetary system, bringing in his special insight as former American ambassador to Saudi Arabia.

Asked about Helga Zepp-LaRouche’s call for a “New Bretton Woods” conference to deal with the western financial crisis, Freeman answered that “the political conditions for that do not exist” at this point in time, due to Washington’s disregard for “diplomacy in its traditional sense”.

However, he pointed out, “one of the effects of the sanctions and other fallout from the Ukraine war is the de facto restructuring of the global financial system. Five ASEAN countries have now agreed to direct settlement of purchases through QR codes. Iran and Russia have agreed to, not just swaps, but a similar arrangement for the use of Russian credit cards in Iran, bypassing SWIFT, the Western-operated Belgian entity that usually clears global transactions through the dollar. Similarly, the BRICS are in the final stages of devising a transnational currency to replace the dollar for purposes of trade settlement. And of course, they are expanding their membership.

“So what we’re seeing is an evolution toward bilateral and plurilateral trade settlement mechanisms that avoid the dollar. And it’s very likely that we are on the path to a future in which the dollar will no longer have the near monopoly position it does in trade settlement, but will be merely one of many currencies in which trade is settled.

“I want to just add that the issue of what is a reserve currency and what is not is actually derived from the question of what trade can be settled in and what it cannot be. But the two are quite different. People talk about the dollar as a reserve currency, but that sort of misses the point. The real strength of the dollar is backed by Saudi Arabia, which in 1974 agreed to denominate the world energy trade in dollars, something that OPEC has grudgingly followed despite objections from some of its members like Algeria and Iran. As long as the dollar continues to be the unit of account for the energy trade and other commodities, the United States will retain our so-called exorbitant privilege. But the minute the Saudis and others begin to accept currencies other than the dollar in exchange for their commodity production, the dollar will collapse, and we will see a massive devaluation of it, comparable to the one that occurred in 1971, when the U.S. went off the gold standard and dollars were no longer exchangeable for gold. This is a process that is occurring, in which a rational response would indeed be some sort of international effort to negotiate a transition. But I don’t see the political basis for that.”

The full interview can be seen and read here.