De-Dollarization: Dismantling the Exorbitant Privilege #395

As India and UAE do oil trade in Rupees, and new geopolitical alignments take shape, de-dollarization may be close to becoming a reality. For knowing where we are we need to know its history. Here is an analysis.

De-Dollarization: Dismantling the Exorbitant Privilege #395
Image by Fransisca Dominic from Pixabay
“I'm not upset that you lied to me, I'm upset that from now on I can't believe you.” ― Friedrich Nietzsche

There is a simple yet powerful story in the Indian collection of fables called Panchtantra.

Once a group of pigeons lived in the forest. A wise old pigeon also lived amongst them. The young powerful ones would search for food and water. One day they saw a lot of rice grains spread across the floor of the forest. They all rushed to it while the wise old pigeon tried to stop them.

It was "too good to be true", he argued. But no one listened.

As they started pecking on the rice, the huge net - a trap - came upon them. They were now caught in the net.

They started pulling. All of them in their own direction. The bird catcher was coming in their direction.

That is when the wise old pigeon shouted to his young friends.

"Stop pulling the net in your own direction. Instead, try to fly up together and carry the net with you."

They did just that. And were freed.

It is a simple fable. With a powerful import.

The global trade and financial system has been such a net and a trap. It is a mechanism for control.

The time to fly together may have arrived for many. This is the story of that flight taking place in front of our eyes.

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Constructing the Global Financial Hegemon

From July 1st through 22nd, 700 representatives from 44 countries were huddled up in the mountains of Bretton Woods, New Hampshire on the premises of Mount Washington Hotel. It was 1944 and the World War II was nearing its end. A momentous decision was being taken.

A new global financial system was being shaped.

The genesis of this system was in the lessons of the 1930s and the impact of the Great Depression. Leaders of the US and Britain had concluded that international peace was dependent on free trade. Protectionism was the key to the creation of an unstable world.

This came out first at the Atlantic Council deliberations in 1941 which led to the Atlantic Charter from the US President Roosevelt and British Prime Minister Winston Churchill.

By 1942, as the World War was raging, the plans for the future financial system were being given shape. The main architects were: Harry Dexter White, Special Assistant to the U.S. Secretary of the Treasury, and John Maynard Keynes, an advisor to the British Treasury.

Keynesian imperialist character

Keynes started his career at the India Office in London and left it when he was 25 years.  He subsequently published the paper Indian Currency and Finance (1913) 5 years later.

He was the authority on Indian economics and even gave evidence or was a member of several commissions on Indian economics and currency: the Chamberlain, Babington–Smith, Hilton Young Commissions, and even the Indian Fiscal Commission.

He taught subjects related to Indian monetary affairs at Cambridge as well.

Keynes specifically had the brief to advise the British government on Indian financial matters during the Second World War.  It was his economic policies that camouflaged the entire Bengal famine as a “natural occurrence” when it was a direct consequence of his economic advice!

Patnaik’s later work has also examined JM Keynes’ influence on Indian economic policy. In Keynes’ own writings on the Indian budget, ‘a studied silence was always maintained on how exactly rupees in the Indian budget ended up as gold and sterling with Britain’ (Patnaik 2018: 35). Patnaik also notes that the economic management tools Keynes’ advocated to raise finance for the British war effort were implemented in Bengal during 1943-44, while they were rejected as unacceptably ‘vicious’ and burdensome in Britain. Keynes’ policy influence is charged by Patnaik with directly resulting in the three million deaths that occurred during the Bengal famine. This final pre-Independence drain of resources followed the extraction of what Patnaik calculates to be £9,184.41 billion between 1765 and 1938 (Patnaik 2017: 311). While noting that Britain is not rich enough to repay even a fraction of what it extracted from India (and that such repayment could never compensate for the loss of life or frustration of economic and technological development that accompanied this extraction), Patnaik does believe it is ‘practicable for the industrial nations as a whole to repay the transfers which they took’ provided that their scholars ‘come to terms with the real drivers and the real history of imperialism’ (Patnaik 2017: 312).  (Source)

So can you see how two of the greatest British “heroes” - Churchill and Keynes - worked together to orchestrate one of the most devastating genocides in those times?

Churchill and Keynes went on to lay the foundations for the new world economic order as well.

IMF and IBRD - start of an era

Although White and Keynes had different approaches despite the fundamentals of the institutions being similar in nature, the subsequent deliberations brought about a convergence. On April 21st, 1944, a "Joint Statement by Experts on the Establishment of an International Monetary Fund" was released. It became the basis for Bretton Woods.

At the end of the July conference, the allied leaders finally signed the Final Act of the United Nations Monetary and Financial Conference. This is how International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) were ultimately put into place. IMF and IBRD were finally in existence on December 27, 1945. (Source for the information: The Bretton Woods Conference, 1944 / US Department of State)

Although Keynes had suggested a global currency called Bancor to be the reserved currency, the Americans pushed back and wanted the US Dollar to be the reserve currency (or the "pegged rate" currency) instead.

Source: Rogue Nation by Clyde V. Prestowitz

It was the IMF that was responsible for establishing a global trade system of fixed exchange rates based on the US Dollar with Gold as its basis.

Here is the story of how the US won. And this incredible story involves a "carefully laid trap, late-night dancing, and copious amounts of alcohol." (Would women have been far?) Listen to this incredible story!

Over the years as the new financial system took shape, countries were no longer accumulating gold. They were instead keeping their wealth in US Dollars. And what better way to do it than in the US Treasury securities?

America's Exorbitant Privilege

The demand for US Treasury securities was rising from other countries, while US was busy churning out deficits - thanks to its penchant for wars (that it would lose despite its powerful military!)

As the US debt increased and the American government was busy covering it up by printing more money, the global markets became wary. Inflation in the US was skyrocketing. The world wasn't happy.

Valéry Giscard d'Estaing, the French Finance Minister (who was also the President from 1974 through to 1981) during the rule of Charles De Gaulle, famously called it America's "Exorbitant Privilege".

Source: Exorbitant Privilege by Barry Eichengreen

The American economist Barry Eichengreen put it very well:

"It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one"

By the end of the 1960s, the situation in global trade had become increasingly worse due to the US inflation and rapidly declining gold reserve backing for the US Dollar.

Source: The Incredible Shrinking Gold Supply / IMF

The chasm between the erstwhile "Allied members" started in 1971. West Germany left the Bretton Woods after both, France and West Germany had devalued their currency which further put pressure on the US gold reserves.

By the end of March 1968, U.S. gold reserves had fallen to $10.7 billion. To ward off a foreign exchange crisis, the U.S. restricted gold sales to central banks only, at the official price: all private sector gold purchases were thereafter made through the London Gold Pool at a higher (market) price. But the outflows continued, culminating in a speculative run on the London Gold Pool in November 1968 in which central banks participated.11 The following year, Germany and France devalued their currencies, putting further pressure on the U.S.’s gold reserves. In May 1971, following sustained speculative attacks, Germany and the Netherlands floated their currencies, effectively leaving the Bretton Woods System. (Source: The Rise and Fall of the Bretton Woods Fixed Exchange Rate System/American Express)

Soon, the US Dollar dropped 7.5% against the German Deutsche Mark. Switzerland redeemed $50 million US Dollars for gold in July 1971 while France acquired $191 million. The US Congress was petrified and issued a report recommending the devaluation of the US Dollar to stem the tide against what it called the "foreign price-gougers." On August 9th, even Switzerland left the Bretton Woods!

Nixon Shock

At this chaotic time, the then US President Richard Nixon met with three people - Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then Undersecretary for International Monetary Affairs and future Federal Reserve Chairman Paul Volcker - on August 13th, 1971.

By August 15th, they were ready to announce the breaking up of the Bretton Woods. In the evening, Nixon announced his  New Economic Policy in an address to the nation on “The Challenge of Peace.”

....Nixon identified a three-fold task: “We must create more and better jobs; we must stop the rise in the cost of living; we must protect the dollar from the attacks of international money speculators.” To achieve the first two goals, he proposed tax cuts and a 90-day freeze on prices and wages; to achieve the third, Nixon directed the suspension of the dollar’s convertibility into gold. He also ordered that an extra 10 percent tariff be levied on all dutiable imports; like the suspension of the dollar’s gold convertibility, this measure was intended to induce the United States’ major trading partners to adjust the value of their currencies upward and the level of their trade barriers downward so as to allow for more imports from the United States. (Source: Nixon and the End of the Bretton Woods System / US Office of the Historian)

Bretton Woods was history.

Petro-dollars and the New Gold Standard

But the bad time in the US continued. Increasing inflation and dollar devaluation continued. Then it was in 1975 that the US used its muscle to create another backup for its Dollar.

The Black Gold.

Source: US Dollar Fiat Currency or Oil-Backed Currency / Brian Williams

Over the years, Petrodollar (US Dollar backed by the Petro trade) has been the global economic norm, where the United States and Saudi Arabia have played tango.

The cracks, however, started developing recently.

The Saudi Shock - Sanction fatigue and De-Dollarization

In April 2019, the Saudis threatened to abandon the Oil trade in US Dollars.

Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said. They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials. (Source: Saudi Arabia threatens to ditch dollar oil trades to stop 'NOPEC' / Reuters)


Because the global players have become sick and tired of the bullying tactics from the United States.

However, economists from other countries are increasingly worried that the country has “weaponized” this position of power in recent years, according to a report from the CBC. The U.S. implements sanctions to punish countries in conflict, threatens to devalue its own currency to win trade wars and leverages it to support its own economy at the expense of the rest of the world. (Source: Saudi Arabia says it's 'open' to the idea of trading in currencies besides the US dollar / Yahoo News)

Not only were the Saudis ready to move away from the US, but they also wanted to instead ally with China. The trigger for this came from the attacks on Saudi Aramco's facilities in 2019 when the US did not meet its security commitments while Saudi's security was exposed.

Source: How drone attacks on Saudi Aramco might blow up US-Iran tensions / Al Jazeera

In March 2023, Saudi Arabia joined the Shanghai Cooperation Organisation (SCO) as a “dialogue partner.”

SCO is an inter-governmental organization of eight member states (China, India, Kazakhstan, Kyrgyzstan, Russia, Pakistan, Tajikistan, and Uzbekistan), some observer states (Afghanistan, Belarus, and Mongolia), and dialogue partners (Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka, and Turkey).

Source: Saudi crown prince acts to realign Mideast dynamics amid concern over US support / Reuters)

The Saudis were no longer happy to play a vassal to the United States.

According to a Wall Street Journal (WSJ) report published on April 3, Prince Mohammed “told associates late last year that he was no longer interested in pleasing the [United States].” (Source)

And, it is not just the Saudis who are unhappy with the way US bullies everyone else. Even African countries are not happy to take the negative impact of the US Dollar on their global trading interests. Kenyan President Ruto, for example, is already working to create an African mechanism for trade within the African continent!

Just as in 1971, the attacks on Saudi Aramco started a series of actions that will eventually end up creating the situation where Petroleum, like Gold earlier, will no longer be backing the US Dollar!

This time though it is not an action that the US is taking. It is being handed that decision by others!

India leads the De-dollarization charge

It is in this environment that this Press Release created a stir.

Indian Oil, an Indian refiner was settling its trade for 1 million barrels of oil with Abu Dhabi National Oil Company (ADNOC) in Rupees.

Source: India just ditched the dollar and used its own currency to buy a million barrels of oil from the UAE / Business Insider

Those cross-border transactions mentioned in the Business Insider story - is the UPI-backed integrated system

The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers. Reserve Bank of India (RBI) and Central Bank of UAE (CBUAE) have signed two agreements in Abu Dhabi to establish a framework for cross-border transactions in local currencies and interlinking of payment and messaging systems. The memorandum of agreements (MoUs) were signed by RBI governor Shaktikanta Das and CNUAE governor Khaled Mohamed Balama, in the presence of the Prime Minister Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE, the Reserve Bank said in a statement. The MoUs are for 'establishing a framework to promote the use of local currencies viz. the Indian rupee (INR) and the UAE dirham (AED) for cross-border transactions' and 'cooperation for interlinking their payment and messaging systems'. (Source: India's UPI UAE's IPP: India’s UPI to be interlinked with UAE’s IPP; rupee, dirham to be promoted for cross-border transactions / Economic Times)

The agreement signed in July 2023 brings India's UPI and UAE's Instant Payment Platform (IPP) together. With this, not only are the instant payment systems being brought together but also the "messaging system." Or in other words, UAE and India have created an alternative to the global messaging system SWIFT between themselves.

The future of world trade may not be one single currency anymore. In a multipolar world, the currency game may be multipolar as well.

Source: X/SL Kanthan

As per some commentators, India - along with the RBI - is preparing to make the Indian Rupee one of the international currencies. While Indian Rupee has fallen against the US Dollar, it has gained against most other major currencies.

The Reserve Bank of India’s (RBI) decision to permit the rupee in global trade is a precursor to making it an international currency. The RBI said the move was to “support the increasing interest of global trading companies”. Although the convertibility is limited to current account, which means partial convertibility, the attempt by the RBI demonstrates India’s readiness to move toward full convertibility . Even though the decision was taken amidst the alarming fall of the rupee against US dollar, the RBI’s decision is a challenge, given the fact that the strong macroeconomic fundamentals will insulate the rupee. The sharp bounce back in the economy with the fastest recovery growth in the world is a case in point. The GDP of India is forecasted to pitch 8 percent growth in 2022-23, after a fall by 7 percent in 2021-22. India is expected to excel Chinese growth, which is forecasted at 4 percent over the same period. The paradox of the rupee fall against US dollar is that it appreciated against all other major currencies, such as the Japanese Yen, Euro and UK’s Pound Sterling. In other words, the reflects that the fall of rupee is not due to the weak health of the economy. The reality lies with the flight of the capital by USA investors in FPI due to high interest rates by Federal Bank. Between February – June 2022, the rupee fell by over 4 percent against the US dollar. On the contrary, it appreciated by 2.8 percent against the Euro, 10.4 percent against Japanese yen and 3.3 percent against Pound Sterling. (Source: De-Dollarization Paves Way for Stronger Rupee / Infobrics)

Aadhaar-backed Unified Payments Interface (UPI) has helped Indian Government's attempts to push for its drive to enable cross-border transactions in Rupees with partner countries. The rapid rise of UPI started in 2014 onwards when Jan Dhan Yojna program was launched by the Modi government.


The stage is set for de-dollarization to be put into motion.

And BRICS to Unleash De-Dollarization?

BRICS is a grouping of the world economies of Brazil, Russia, India, China, and South Africa. It started with just Brazil, Russia, India, and China (BRIC), and South Africa was added in 2010.

In this year's BRICS summit, a whopping 41 countries will push to be part of the BRICS alliance. Why?

Because they see this as a way to challenge the US Dollar's dominance. De-Dollarization champion!

Source: Here Are the 41 Countries – 8 from Africa – Ready to Accept BRICS Currency a Month Before South African Summit / Bitcoinke

Why the sudden interest in BRICS?

Because recently it overtook the G7 countries in the share of the global GDP. Let me say it again - the 5 BRICS countries today have more GDP than the 7 countries of G7 countries. Here is a quick video of how the trajectory changed over the years.

In a sign that the United States is digging its heels deeper with respect to the opposition to BRICS, specifically Russia, it is pushing South Africa to arrest Russian President Vladimir Putin when he attends the BRICS summit.

South African officials want BRICS to become a champion of the developing world, and Argentina, Iran, Saudi Arabia, the United Arab Emirates, Cuba, Democratic Republic of Congo, Comoros, Gabon, and Kazakhstan have all expressed interest. South Africa had faced a dilemma in hosting the summit. As a member of the International Criminal Court (ICC), which issued a warrant against Putin in March, it would be obliged to arrest the Russian president if he attended for alleged war crimes by Russia during its invasion of Ukraine, charges Putin denies. (Source: More than 40 nations interested in joining BRICS, South Africa says / Reuters)

Which South Africa has refused to do. Also warning that if they were forced to do such a thing, it could trigger a larger war.

Basically, the balance of global trade and dominance is changing.

BRICS - and the developing world - is growing rapidly. This means that BRICS+ could be a direct competitor to G7 and even NATO!

I have explored this topic with my friend - Ankush Bhandari. Please watch.

Having learned how the different global forces are converging to the de-dollarization movement, it is important to understand how that will impact the US.

De-dollarization and the US Economy Collapse

Today, when the reserve currency is the US Dollar, the increase in debt for the US does not translate into much for the United States. It simply prints more money and moves on.

Compare that to the situation for another country. Say, Argentina. If Argentina has a debt, it will need to settle that external debt in US Dollars. For that, it needs to buy more US Dollars. That is not easy.

What for the United States was simply printing papers, for Argentina would mean an economic bankruptcy and collapse!

That is an important distinction.

But what if the global trade is really not in the US Dollar? Then, US Dollar's pegging to the global multi-polar currency market will be in real terms. That could mean, given the level of the US debt, a complete Economic collapse!

Here is one take on the set of events that could unfold as a result of de-dollarization.

If the U.S. economy were to collapse, you would likely lose access to credit. Banks would close. Demand would outstrip supply of food, gas, and other necessities. If the collapse affected local governments and utilities, then water and electricity might no longer be available. A U.S. economic collapse would create global panic. Demand for the dollar and U.S. Treasurys would plummet. Interest rates would skyrocket. Investors would rush to other currencies, such as the yuan, euro, or even gold. It would create not just inflation, but hyperinflation, as the dollar would lose value to other currencies. If you want to understand what life would look like during an economic collapse, think back to the Great Depression. The stock market crashed on Black Thursday.3 By the following Tuesday, it was down 25%. Many investors lost their life savings that weekend. By 1932, one out of four Americans was unemployed.4 Wages for those who still had jobs fell precipitously—manufacturing wages dropped 32% from 1929 to 1932.5 U.S. gross domestic product was cut nearly in half. Thousands of farmers and other unemployed workers moved to California and elsewhere in search of work. Two-and-a-half million people left the Midwestern Dust Bowl states.6 The Dow Jones Industrial Average didn't rebound to its pre-Crash level until 1954. (Source: US Economic Collapse: What Would Happen? / The Balance Money

A global war could, however, change things completely.

And that may be the precursor to the stage of the US Dollar collapse. If it comes to that at any stage.

Video Corner: Portrait of a Prostitute

A developed country like the United States is not a very fair society. In fact, lost in the underbelly of glimmer and shine are the dark streets where humans devour other humans and sell one another.

This is an interview and portrait of Exotic, a prostitute on Figueroa Street in South Central Los Angeles. It left me with such a hollow feeling about the world we inhabit and a sense of anger at the forces that have created the injustice that this 23 year old woman has had to undergo.

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