Michael Hudson: Dedollarization is Remedy Against US Militarism

The de-dollarization trend is gaining momentum, with American scholars warning that there is seemingly no way back.

Washington's decision to freeze Russia's Central Bank's foreign reserves over Moscow's special military operation in Ukraine has seemingly became the last straw for the countries of the Global South, which have increasingly started to look for an alternative to the US dollar.

"For the last year and a half, America has said, 'if other countries hold their dollars and European banks or American banks and they do something that we don't like, we have a right to grab all of their dollars and simply take them'," Prof. Michael Hudson told Sputnik.

"For instance, Venezuela wanted to have a socialist government. So America told England, 'Take all of Venezuela's gold and seize it, and we will designate somebody we think should be president of Venezuela, Mr. Grito, or Guaido'. And so Venezuela lost its gold supply. A year ago in February, America simply grabbed all of Russia's savings in the West. Americans told China, Iran, other countries: 'If you don't impose the sanctions against Russia and China, if you don't commit economic suicide by letting America colonize you financially, we will just grab all of your money. Everything's fair play. You're holding dollars. We get to grab it'."

So, the US showed everyone in the world that the dollar is no longer safe, that the greenback is now a political currency, the professor continued. But that's half the story, according to him. One might ask: how are these dollars being pumped into the world economy?

"Ever since the Korean War, the major factor in the American balance of payments deficit that sent dollars abroad has been military spending," Hudson said. "So, when other countries keep their foreign exchange reserves in dollars – Europe, Russia, China – they hold these dollars safely in Treasury securities. Buying the Treasury Security has been the way of funding America's 800 military bases surrounding them. So, foreign countries have paid for America to surround them with military bases and to fund America's military, because the dollars that are in the world are the monetization of American military spending. That's what my book 'Super Imperialism' was all about. This was a very conscious policy by the United States, by the Defense Department."

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The economist revealed that he had many meetings with the State Department and the Defense Department after America went off gold. At the time, they said: "Yes, as long as we can have other countries holding their reserves in dollars, not in gold, not in any alternative to the dollar, then we can spend all the money we want militarily and they will not dare fight against us," as per Hudson.

However, after the world's players realized that the US is using its reserve currency hegemony to promote military instability all over the globe they decided to stop bailing the dollar out and switch to their national currencies.

"Saudi Arabia and China are dealing in their own currencies now with currency swaps and the BRICS countries – Russia, China, Iran, other countries – they're all putting in place currency swaps to deal in their own currencies for trade amongst themselves," the professor continued. "So far, these are only bilateral deals because there isn't really a common alternative currency. In order to make an alternative currency beyond merely holding each other's currency, you would have to have an alternative to the International Monetary Fund (IMF). And that's what [Brazilian President] Lula [da Silva] was talking about when he went to Asia."

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How Can BRICS Currency Replace the Dollar?

"How do we make a common alternative bank?" asked Hudson. "Well, the problem with an alternative bank is [that] you need its members to agree on who gets the credits. The idea is to make something like what John Maynard Keynes proposed way back in 1944, a bank that would create paper gold, artificial money, and essentially give it to various countries. The kind of special money that this bank would create isn't the kind of money that you spend at the grocery store. It's not money that would be spent domestically. It's money to do what gold does. And that is only a subtle balance of payments deficits among central banks. That's what gold is now."

In January 2023, Russian Foreign Minister Sergey Lavrov and Brazilian President Lula raised the issue of a potential common BRICS currency almost simultaneously on both sides of the Atlantic Ocean. The crux of the matter is that the idea of a common currency has been circulating in the bloc for quite a while.

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As per Russian Minister of Finance Anton Siluanov, a common BRICS currency can be used as a unit of account for settlements and conversion without the dollar's participation. For its part, the New Development Bank (NDB), an international financial organization established by BRICS in 2014, could become a sort of clearing center that would simplify the issue of payments for mutual deliveries of goods, the minister explained. BRICS nations have also proposed that the new common currency might be secured not just by gold, but also by other groups of products, such as rare-earth elements.

"When it is finished being discussed, people will not have to deal with dollars at all anymore," Hudson assumed. "And in fact, of their trade with the United States, they can say, well, if you want to buy something from China, you pay in our currency. We're not going to cut back our spending on the United States. And all of a sudden, if the United States is unable to have other people keep their savings in dollars, meaning buying Treasury securities, then how are they going to pay the international balance of payments cost of their military spending? They won't be able to spend it militarily abroad."

"The only way they can do it is drastically cut back imports in America. And to do that, you have to cut wage rates by 20%. You have to make the American labor force the poorest labor force in the West so that all of the balance of payments, money that's spent, is not on buying goods and services to consume, but only for military spending. That is the Cold War and the American wage-earning class and the labor unions are committing labor suicide by not realizing that, if you refocus your balance of payments away from industry and towards military, that it's the consumers and the wage earners that have to suffer," Hudson continued.

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What's Behind the Myth of the Dollar's Indispensability?

Washington policy-makers have long been aware that the nations could start reducing their dependence on the dollar, according to the economist. Hence, they have been spending a lot on myriads of non-governmental organizations and think tanks in Europe, Russia, China, and the Near East, all to try to prevent, to say it's impossible to have an alternative to the US dollar and to change the world.

US neocon zealots are advocating militarily forcing and destroying any country that wants an alternative to the dollar. They are convincing the public to stick to the 'IMF thinking' and Western-style economic orthodoxy. To illustrate his point Hudson referred to American economist Prof. Paul Krugman, who insisted in one of his articles in The New York Times that "everybody is so used to dealing the dollar, they can't find an alternative."

"Well, almost everybody with a broader mind can find an alternative," Hudson emphasized. "But if you can have the other central bankers think in the tunnel vision that Mr. Krugman was educated in and share this tunnel vision to say there is no alternative to the dollar, then they're not going to think of how to make an alternative to the dollar. Most of my books are all about how to make an alternative to the dollar and the interviews that I'm doing, and my colleagues and I are spending our full time writing. We write for the Valdai Club in Russia. I write for the Chinese Academy of Social Sciences. We're writing for other countries to help create an alternative to the dollar because we don't want to see the world militarized in the way that the US is militarizing it. We want to see a resumption of the economic potential that the world seemed to have leading up to World War One before the whole economy got derailed a century ago."

For more of Prof. Michael Hudson's exclusive analysis on the de-dollarization trend and alternative currencies check out the full episode of the New Rules podcast.

Michael Hudson: De-Dollarization is Remedy Against US Militarism

How Can BRICS Currency Replace the Dollar?

What's Behind the Myth of the Dollar's Indispensability?