Inter-imperialist rivalry and the specter of de-dollarization: On the decline of the US Dollar since the start of the Ukraine War
A few days ago, a highly interesting article reported on the accelerating trend of decline of the US Dollar as the leading currency. This article is of particular relevance because of the author, Frank Giustra, who is co-chair of the International Crisis Group (ICG) and an ardent defender of an imperialist world order based on US hegemony. The ICG is one of world’s most influential think tanks and is funded by Western governments and billionaires like George Soros.
The title of Giustra’s article, “De-dollarization: Not a matter of if, but when”, bespeaks the doomsday assessment of the author. After summarizing the most important statements of this article, we will discuss its conclusions from a Marxist viewpoint.
The “exorbitant privilege” …
The author emphasizes that the dominant role of the US Dollar has been one of the most important — if not the most important — instruments used by Washington to impose its global hegemony for decades.
The United States may have a powerful military, but its true strength lies in the value and status of its currency. With the U.S. dollar seen and accepted as the world reserve currency, America has the privilege to control the global financial system, run federal deficits without having to worry about consequences, and literally print trillions of dollars out of thin air. This unique advantage also allows the U.S. to keep interest on its accumulated debt low and provide its citizens a standard of living that would not otherwise be possible. But how long will it last? Since the end of World War II, the U.S. has held what is often referred to as an “exorbitant privilege” over the global economy.
However, its long-term hegemonic position has been undermined in the past two decades.
By the early 2000s, America had transformed from once being the world’s largest creditor to becoming its largest debtor nation and the Federal Reserve began a reckless monetary policy which has lasted for the last two decades. Following the 2008 financial crisis, China complained about how the U.S. was devaluing the dollar through its large accumulation of debt and excessive printing of money and began to voice its desire to introduce a new global financial system.
Giustra explains that the acceleration of Great Powers rivalry experienced a turning point with the wave of Western sanctions against Russia in the context of the Ukraine War that started in February 2022.
The concept of anything superseding the dollar was considered unthinkable by most of the developed world as verging on heresy by America. That is, until recently. When Russia invaded Ukraine, everything changed. The U.S. and NATO countries (the West) not only imposed sanctions on Russia, but they also froze its U.S. dollar reserves and blocked it from the SWIFT dollar transfer system. Seeing an opportunity, China took notice and encouraged much of the world to follow suit. The race began to find alternatives. While the West was right to confront Russia for its unprovoked aggression, they underestimated the global response to these sanctions.
… has come to an end
As a result of the push by Western imperialism, a growing number of countries — led by China and Russia — have started to increase their trade in alternative currencies with the help of alternative financial transfer systems.
As such, in just over a 12-month period, countries around the world mustered the courage to begin openly discussing the creation of alternative methods to conduct trade and settlement, as well as reducing their dollar reserves. The trade and settlement role of the dollar is where most of the exiting will occur and where the demand for the dollar will fall away more precipitously. Furthermore, BRICS countries have attracted numerous new member applications over the past year, with Egypt, Turkey, Algeria, and most recently Saudi Arabia showing interest and making declarations about creating a BRICS currency to compete with the dollar. Many of these countries have been aggressively adding to their gold reserves over the past 13 years, and the size of their purchases has been accelerating, suggesting that perhaps any new currency might be backed by gold.
The author goes on to illustrate this process by giving a number of concrete examples of trade deals between states that have been financed by currencies other than the US Dollar.
It is particularly interesting to see that the ICG’s co-chair is fully aware of the character of such a process of de-dollarization and its long-term implications.
The critical unanswered question is how the U.S. will respond to moves to de-dollarize. Any sudden decrease in U.S. dollar demand could have disastrous consequences for Americans. It could potentially trigger a U.S. dollar crisis leading to very high inflation, or even hyperinflation, and initiate a debt and money printing cycle that could tear apart the social fabric of society. In short, any U.S. administration would ultimately consider any such de-dollarization moves to be matters of national security. Much of the global community is cheering, however. A lot of sovereign debt held by the global south is denominated in greenbacks, and an overpriced dollar makes debt service nearly impossible today. Additionally, because most commodities are priced in dollars, many less developed countries are importing inflation that would otherwise accrue to the U.S.
Giustra concludes his article with highly remarkable statements. First, he recognizes that the end of US Dollar hegemony is inevitable.
Despite America’s likely opposition, de-dollarization will persist, as most of the non-Western world wants a trading system that does not make them vulnerable to dollar weaponization or hegemony. It’s no longer a question of if, but when.
Furthermore, he warns that historical experience shows that such a process usually results in big wars.
That being said, BRICS nations should consider what America’s reaction to sudden shifts away from the dollar might be. History has demonstrated that it is exceptionally rare for a transfer of global economic power to take place without major warfare.
Nevertheless, at the end of the article, the author elaborates some naïve proposals on how the US could moderate the process of de-dollarization by accepting a “multipolar monetary system”.
To break away from this hazardous trajectory, credible and inclusive dialogue regarding a new global agreement should commence now, in which major economies consent to a new monetary system (perhaps backed by gold and/or commodities) by consensus, including the U.S. This would inevitably involve substantial discomfort for the U.S., possibly to such an extent that it is politically unpalatable. The best we can hope for is a process that facilitates the gradual decrease in dollar demand over a lengthy period of time, allowing the U.S. and other countries to adjust accordingly. A multipolar monetary system might provide a more equitable playing field to poorer countries and just maybe give the U.S. and the world longer-term economic and political stability. The likely outcome of this would still be quite chaotic and involve a drop in the standard of living for Americans. Nevertheless, this path appears inevitable, and such an option is preferable to the inevitable turmoil of the more extreme scenarios we have seen throughout history.
A Marxist assessment
The article by the ICG co-chair is a powerful confirmation of the analysis that some Marxists, including the author of these lines, have been elaborating for a number of years. As we demonstrated in our works on imperialism, the US — and Western powers in general — have experienced a long-term decline, reflecting the general process of crisis of world capitalism. This process went hand in hand with a) a shift of production of capitalist value away from the old imperialist centers and b) the rise of new Great Powers (especially China and Russia).
Frank Giustra states in his article that the “true strength [of the US] lies in the value and status of its currency.” While it is true that the preeminent status of the US Dollar in the global financial system has provided Washington with an important instrument for global influence, it is mistaken to imagine that this would be the main factor or cause of US imperialism’s long-term hegemony.
As Marxists we know that the status of a currency is — albeit in an indirect and distorted way — a reflection of the economic strength of a capitalist state. More precisely, it reflects the share of the given country (i.e. of its national capital) in the global production of capitalist value. After World War II, the US was responsible for nearly half of the world’s industrial production. Since then, its share has massively declined. Today, China is the leading manufacturing nation with a share nearly double as big as that of the US. (See Table 1) This is all the more impressive since China’s share in global manufacturing was only 3.5% in 1990, i.e. it was only 1/9 of its share three decades later.
Of course, these figures themselves are distorted, as we demonstrated elsewhere, as they tend to present the rich imperialist countries’ share as larger than it actually is. Still, the dynamic of the shift in global capitalist value production becomes obvious even from such figures.
This shift has also resulted in the challenge or even replacement of the US by China in other fields that reflect the strength of imperialist powers. Below we show that China has become a leading nation in terms of top global corporations as well as billionaires. (Table 2, 3 and 4)
There are other calculations which rank the US ahead of China. For example, the Forbes 2000 list for the year 2022 ranks the US as No. 1 with 590 companies and China (including Hong Kong) as No. 2 with 357 companies. But irrespective of the differences in calculations, all respective studies agree that the US’ share is declining massively and China’s has risen correspondingly.
Accelerating decline of US Dollar’s global share since March 2022
Since the financial position (indirectly) reflects changes in the process of capitalist value production, it is not surprising that the global position of the US Dollar has also declined, with its share dropping from 73% in 2001 to 55% in 2021. As we see, the position of the US currency is still much stronger than its position in the productive sector of the world economy. This is because such changes do not take place simultaneously but in a delayed fashion. Washington has managed to maintain its hegemonic position for a longer time within global financial institutions.
However, this only means that the current position of the US Dollar in the global currency market does not reflect the actual economic strength of Washington. Rather, it reflects its past strength. Hence, it is only a matter of time until the position of the currency will adjust to the position in the real economy.
In fact, we are already in the midst of such a process. According to several economists, the decline of the dollar’s share has rapidly accelerated since the beginning of the Ukraine War, with the aggressive policy of Western sanctions against Russia accelerating this process.
Stephen Jen noted: "The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions." According to his calculations, the US Dollar's share of official global reserve currencies tumbled from 55% in 2021 to 47% in 2022, i.e. it lost more than 1/7 of its share within 12 months. Jen adds: "Adjusting for these price changes, the dollar, we calculate, has lost some 11 percent of its market share since 2016 and double that amount since 2008."
Another economist, Peter St Onge, agrees with this analysis. He comments that “de-dollarization is real and is happening fast” and that “now de-dollarizing [is] 10x faster than the previous two decades.”
Many economists are discussing the question of which currency will replace the dollar or, more concretely, if China’s yuan could become the new leading currency. As we recently discussed elsewhere, this question is misleading. Nobody will replace the US Dollar as the leading currency, as the imperialist world order is no longer dominated by a single power. There will be several Great Powers rivaling each other without being strong enough to impose their domination on all others. Hence, there will be several strong currencies (e.g. US Dollar, yuan and Euro) and it is also highly likely that gold — the “old” global currency — will play an increasingly important role.
Giustra is absolutely correct to say that the end of the US Dollar's dominant position is “no longer a question of if, but when.” One can also hardly disagree with his observation that “history has demonstrated that it is exceptionally rare for a transfer of global economic power to take place without major warfare.”
Giustra contradicts himself when he outlines utopian proposals for a smooth transition towards a multi-polar world order. These are nothing but desperate hopes for an illusionary peaceful self-reform of imperialism. It is obvious that Washington has for a number of years utilized its military strength and its strong position in global political and financial institutions to halt the decline of US imperialism. Washington’s wars in Iraq and Afghanistan or the policy of massive sanctions against China and Russia (and Iran and North Korea) – both by the Donald Trump and Joe Biden administrations – are testimony to this fact.
Marxists have explained for many years that Great Powers rivalry will inevitable accelerates the march towards World War III unless the international working class overthrows them. In Anti-Imperialism in the Age of Great Power Rivalry, we noted:
The decline of the West and the rise of the East mean, in the first place, an acceleration of the contradictions between the Great Powers. It means more trade wars, more proxy wars and, eventually, major wars between the rivals. The West will not go down without a desperate struggle for hegemony. And it would be foolish to exclude the possibility that the West could win such a confrontation. If the working class does not succeed in overthrowing the capitalists bandits in time, it is, however, also possible that the result of such a world war will be rather annihilation of all participants.
It is all the more remarkable that a thought leader of Western imperialism publicly recognises the inevitable dynamic of imperialist militarism.
In such a period of accelerating inter-imperialist rivalry, socialists must take an unambiguous stance of intransigent opposition against all Great Powers. In any conflict between imperialist states, all of them are the “greater evil”. The task is to agitate for an independent position of the working class which seeks to utilize the difficulties of each ruling class for transforming such conflicts into an uprising and socialist transformation.
 Frank Giustra: “De-dollarization: Not a matter of if, but when. US hegemony is losing its grip, as friend and foe seek currency alternatives amid global sanctions and new Global South alliances”. May 3, 2023 https://responsiblestatecraft.org/2023/05/03/de-dollarization-not-a-matter-of-if-but-when/. All quotes are from this article unless indicated otherwise.
 Wikipedia: International Crisis Group, https://en.wikipedia.org/wiki/International_Crisis_Group
 For our elaboration of the Marxist theory of imperialism see Michael Pröbsting: Anti-Imperialism in the Age of Great Power Rivalry. The Factors behind the Accelerating Rivalry between the U.S., China, Russia, EU and Japan. A Critique of the Left’s Analysis and an Outline of the Marxist Perspective, RCIT Books, Vienna 2019, https://www.thecommunists.net/theory/anti-imperialism-in-the-age-of-great-power-rivalry/; and Michael Pröbsting: The Great Robbery of the South. Continuity and Changes in the Super-Exploitation of the Semi-Colonial World by Monopoly Capital. Consequences for the Marxist Theory of Imperialism, RCIT Books, Vienna 2013, https://www.thecommunists.net/theory/great-robbery-of-the-south/.
 Figures for the year 2000: APEC: Regional Trends Analysis, May 2021, p. 2; the figures for Germany and India in the first column are for the year 2005 (UNIDO: Industrial Development Report 2011, p. 194); figures for the year 2021: UNIDO: International Yearbook of Industrial Statistics Edition 2022, p. 39
 See on this The Great Robbery of the South, pp. 57-68; see also: John Smith: Imperialism in the Twenty-First Century. Globalization, Super-Exploitation, and Capitalism’s Final Crisis, Monthly Review Press, New York 2016, pp. 252-278
 For our analysis of capitalism in China and its transformation into a Great Power see Anti-Imperialism in the Age of Great Power Rivalry; by the same author: “Chinese Imperialism and the World Economy”, in the second edition of The Palgrave Encyclopedia of Imperialism and Anti-Imperialism (edited by Immanuel Ness and Zak Cope), Palgrave Macmillan, Cham, 2020, https://link.springer.com/referenceworkentry/10.1007%2F978-3-319-91206-6_179-1; "China: An Imperialist Power … Or Not Yet? A Theoretical Question with Very Practical Consequences! Continuing the Debate with Esteban Mercatante and the PTS/FT on China’s class character and consequences for the revolutionary strategy", 22 January 2022, https://www.thecommunists.net/theory/china-imperialist-power-or-not-yet/; "China‘s transformation into an imperialist power. A study of the economic, political and military aspects of China as a Great Power" (2012), http://www.thecommunists.net/publications/revcom-number-4; "How is it possible that some Marxists still Doubt that China has Become Capitalist? An analysis of the capitalist character of China’s State-Owned Enterprises and its political consequences", 18 September 2020, https://www.thecommunists.net/theory/pts-ft-and-chinese-imperialism-2/; "Unable to See the Wood for the Trees. Eclectic empiricism and the failure of the PTS/FT to recognize the imperialist character of China", 13 August 2020, https://www.thecommunists.net/theory/pts-ft-and-chinese-imperialism/; "China’s Emergence as an Imperialist Power", New Politics, Summer 2014 (Vol:XV-1, Whole #: 57).
 Andrea Murphy and Isabel Contreras: “The Global 2000” (2022), https://www.forbes.com/lists/global2000/
 See Michael Pröbsting: Inter-imperialist rivalry: China surpasses the US in robot density, LINKS, 10 February 2023, https://links.org.au/inter-imperialist-rivalry-china-surpasses-us-robot-density
 Fortune Global 500, August 2022, https://fortune.com/global500/2022/ (the figures for the share are our calculation)
 Hurun Global Rich List 2021, 2.3.2021, https://www.hurun.net/en-US/Info/Detail?num=LWAS8B997XUP
 Forbes: Forbes Billionaires 2023, https://www.forbes.com/sites/chasewithorn/2023/04/04/forbes-37th-annual-worlds-billionaires-list-facts-and-figures-2023/?sh=23927e7477d7
 For our analysis of the Ukraine War see “Ukraine War: A Turning Point of World Historic Significance. Socialists must combine the revolutionary defense of the Ukraine against Putin’s invasion with the internationalist struggle against Russian as well as NATO and EU imperialism”, 1 March 2022, https://www.thecommunists.net/worldwide/global/manifesto-ukraine-war-a-turning-point-of-world-historic-significance/; “Manifesto on the First Anniversary of the Ukraine War. Victory to the heroic Ukrainian people! Defeat Russian imperialism! No support whatsoever for NATO imperialism!” 10 February 2023, https://www.thecommunists.net/worldwide/global/manifesto-on-first-anniversary-of-ukraine-war/.
 See Michael Pröbsting: “Less Than 9%. Many Western corporations continue to make business with Russia despite the official sanction policy”, 11 February 2023, https://www.thecommunists.net/worldwide/global/western-corporations-continue-to-make-business-with-russia/; Michael Pröbsting: “Where is Russia hiding its money? Why EU authorities claim they can not find most of Russia’s foreign assets”, LINKS, 16 April 2023, https://links.org.au/where-russia-hiding-its-money-why-eu-authorities-claim-they-can-not-find-most-russias-foreign; “The G-7 Oil Price Cap: A New Stage in the Great Power Rivalry. The Cold War between the Western powers and their Eastern rivals points towards escalation”, 7 September 2022, https://www.thecommunists.net/worldwide/global/the-g-7-oil-price-cap-a-new-stage-in-the-great-power-rivalry/
 Quoted in Anna Golubova: “USD is suffering 'stunning collapse' as world's reserve currency, warns Eurizon SLJ Capital's Jen”, Kitco News, 19 April 2023, https://www.kitco.com/news/2023-04-19/USD-is-suffering-stunning-collapse-as-world-s-reserve-currency-warns-Eurizon-SLJ-Capital-s-Jen.html
 Quoted in: Zahra Tayeb: “De-dollarization is undeniable, and the debate about the greenback's dominance is heating up”, Business Insider, 1 May 2023, https://markets.businessinsider.com/news/currencies/dedollarization-currencies-elon-musk-ray-dalio-chamath-palihapitiya-2023-5
 See Michael Pröbsting: “‘Can China Replace the U.S. as Hegemon?’ - A Misleading Question! On the discussion about the perspectives of the Great Power rivalry”, 28 April 2023, https://www.thecommunists.net/worldwide/global/can-china-replace-the-u-s-as-hegemon-a-misleading-question/
 For a discussion of the inter-imperialist rivalry of the Great Powers see: World Situation: In the Midst of a Global Political Tornado. Notes on global developments characterized by the Ukraine War, inter-imperialist rivalry, global energy and food crisis as well as spontaneous mass protests, 13 April 2022, https://www.thecommunists.net/theory/world-situation-april-2022/; “‘A Really Good Quarrel’. US-China Alaska Meeting: The Inter-Imperialist Cold War Continues”, 23 March 2021, https://www.thecommunists.net/worldwide/global/us-china-alaska-meeting-shows-continuation-of-inter-imperialist-cold-war/; Servants of Two Masters. Stalinism and the New Cold War between Imperialist Great Powers in East and West, 10 July 2021, https://www.thecommunists.net/theory/servants-of-two-masters-stalinism-and-new-cold-war/.
 Michael Pröbsting: Anti-Imperialism in the Age of Great Power Rivalry, p. 87