The truth now is: “He who prints the money makes the rules”-- at least for the time being. (...) The goals are (...): compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.

Ron Paul


In November last year, at the third extraordinary Summit of Heads of State and Government of the Bolivarian Alternative for the Peoples of Our America (ALBA) - Peoples' Trade Agreement (TCP), the presidents came together with the intention to confront the crisis of the global capitalist system. Considering the volatility of the international financial system, the untenable situation of the capitalist model with its destructive logic, and the absence of proposals and categorical measures by the big global power centers in order to confront the crisis, the presidents of the ALBA member States shared the opinion that the international financial system cannot simply be re-founded but has to be replaced by a different one, based on solidarity, stability, ecological sustainability and social justice. The Heads of State concurred with each other in that the countries of our region, if their response to the crisis intends to be efficient, definitely have to break lose and protect themselves from the grip of transnational capital so as to be able to take a different direction that does not make them dependent on the eroded international economic and financial system, nor on the US dollar hegemony, artificially maintained and literally imposed by force. To this effect, they agreed on creating a Latin American monetary zone that would, in its first phase, comprise the ALBA member States and it was further detailed that the monetary zone would count with a Chamber for the Compensation of Payments and a Stabilization and Reserve Fund, financed by the contributions of its member States. What concerns the economic policies of the future Latin American monetary and economic zone, the Heads of State agreed on the implementation of an expansive policy of demand stimulation, Keynesian in nature, promoting investments to further the development of complementary economic activities. (1)

Furthermore, the presidents agreed that the Latin American monetary zone would issue its own currency, the 'Unified System of Regional Compensation' or Sucre, in order to gain independence from the international financial markets and to break with the eternal dependency on the US Dollar as the main currency for trade and financial transactions, prevalent up to now in the trade relations between our Latin American countries.(2) The financial operations with the new currency are expected to begin next year, and there is trust that the ALBA member States can count on this instrument from the very 1st of January 2010 on.(3) Therewith, an extremely important step will be taken on the road to the necessary dismantlement of the present international economic and financial system which remains characterized by the hegemony of the US Dollar, enabling the United States to import goods and services from all over the world in exchange of a printed piece of green paper which is practically worthless.

The fact that the dollar today has no other real value than the value of the paper its printed on, makes the continuity of its world hegemony a matter of life and death for the United States of America. In a condensed overview of the history of the rise and fall of the US dollar, it is pertinent to remind the reader that after the Second World War the North American economy was the most powerful and solid of the entire world. It had enormous capacities of exportation and credit, which allowed it to finance the reconstruction of Western Europe through the famous Marshall Plan, in view of fostering a future European market to absorb US exports and investments, as well as containing the possible influence of the Soviet Union in Western Europe. The US Dollar transformed itself into the world's unchallenged, leading reserve currency, within the framework of the Bretton Woods international monetary system under the gold-exchange-standard. The Dollar figured as the anchor or reserve currency, convertible in gold, and fixed exchange rates were established between the different international currencies.

However, the growing trade deficit of the United States, combined with an inflationary monetary policy, especially during the Vietnam War, lead to the collapse of the Dollar's convertibility in gold, which ended with its unilateral suspension by the Nixon administration in 1973. Therewith, the original Bretton Woods system had collapsed and the dollar suffered a sensitive decline as international reserve currency, although it did not really get challenged by other currencies at that moment, given the absence of a sufficiently strong competitor who could have occupied this position. The breakdown of the Bretton Woods system lead to the devaluation of the dollar and thus caused a decrease of revenues from oil for the OPEC countries, as oil was priced in dollars only. This fact, in addition to the 1973 Jom Kippur war in the Middle East, lead to the rise of oil prices and the oil crisis of 1973/74, which, in turn, generated the phenomenon known as the 'recycling of petro-dollars' that ended up in strengthening once more the position of the US dollar. In the absence of an alternative international reserve currency or the existence of a petro-currency basket, the dollar got 'anchored' to oil in a kind of 'oil-standard', which enabled it to perpetuate itself, in spite of the enormous and growing balance of payments deficit of the US, as the primary international reserve currency and the only petro-currency, practically until our days. This panorama only had begun to change with the rise, at the beginning of the new millennium, of a strongly competing international reserve currency, the euro, and the displacement of the world economic center from North America to Europe and Asia. Today, with the collapse of the international financial system and the generalized capitalist crisis, the panorama looks troubling for the US dollar.

Until now, two main factors have helped sustain the privileged position of the dollar in the world: Firstly, the capital flows towards the United States as a result of the re-investment, in the United States, of the commercial surpluses obtained by nations and investors through their trade with the US. Secondly, the exclusive pricing, on a world wide scale, of oil transactions in US dollars, being this factor of vital importance to the United States for guaranteeing the perpetuation of their currency as the leading and indispensable international reserve currency. This allows the US to continue to encumber itself with debts denominated in their own currency, for which the US holds the exclusive printing monopoly. This means that the Federal Reserve has printed and continues to print dollars in the quantity and at the time it deems necessary, practically without restrictions, apart from the capacity and will of others to absorb them on a global scale, and the inflationary pressure generated by this on the domestic as well as international level. As if this were not enough, the immense capital flows towards the United States from abroad not only have financed its trade and balance of payments deficits, but, and perversely so, also the costs of its military spending which are the highest of the planet. This is how, on the one hand and given the astronomical costs of its military spending, US military supremacy would come down like a house of cards if the dollar would lose its role as the world's leading reserve and petro-currency; and on the other hand, it is the same US military supremacy by virtue of which the United States have been able to defend, in a 'preemptive' manner, their currency and its privileged position in the world on which the whole deficit-existence of the United States of America has comfortably rested until now.

In the words of US congressman, Ron Paul:

"Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become." (4)

The price that a part of the world had to pay so that this perverse system would maintain itself intact, has expressed itself in pressures, coercion, threats, aggression wars, military coups and destabilizing operations, especially in the cases of those countries which, in one way or the other, have tried to establish another kind of financial framework which could have led, eventually, to the demise of the dollar hegemony. Remember the case of Iraq with the decision of Saddam Hussein, in November of the year 2000, to shift Iraq's international reserves from the dollar to the euro and to price the sale of Iraqi oil in euros; situation which was immediately reverted by the North American invaders once Iraq had been attacked and occupied in 2003. There is the case of the continuous threats against the Islamic Republic of Iran, a country which in the year 2002 began to shift a big part of its international currency reserves from dollars to euros and which launched the project of an Iranian Oil Bourse to be set up on the island of Kish, which would price the sale of Iranian oil in euros and other currencies with exception of the dollar. The project was postponed various times for unknown reasons until the Iranian Oil Bourse finally opened its operations in February last year.(5) And then, there is the notorious case of our Bolivarian Republic of Venezuela, victim of a military coup in the year 2002 and since then, of continuous destabilization operations which point to an eventual direct military intervention by the US Armed Forces, from Colombian territory; not only because of the appetite the government of the United States has for the natural and energy resources of Venezuela and the region, but also because president Hugo Chávez has pronounced himself in the past in favour of the pricing of Venezuelan oil in euros and other currencies, and also has traded certain amounts of Venezuelan oil for its respective equivalent in goods and services with other countries of the region, thus avoiding the use of the US dollar in inter-regional trade transactions. Russia and China, which holds the world's largest dollar reserves, have long considered that the dollar does not fulfill a meaningful role as the leading reserve currency and have proposed, at the last summit of the G-8 in July this year, that a new, supra-national unitary currency be implemented world-wide, based on a mixture of regional reserve currencies and considered to be indispensable to overcome the abysmal crisis of the international financial system.

The price that ultimately had to be payed for the artificial maintenance of the dollar hegemony on a global scale, has been the very collapse of the international financial system, payed, as always and naturally, by the workers of this world, who do not only see the future of the present generation of workers compromised, but that of many generations to come. Even the United Nations seem to have woken up, given that the recently published annual report of the United Nations Conference for Trade and Development (UNCTAD) of the year 2009, suggests the replacement of the US dollar by a new, leading world currency. (6) And while a chorus of ever stronger voices is beginning to be heard, claiming for a new international financial order, our ALBA member countries, confident in their own strength, will and potentiality, are taking the first concrete steps in order to not only detach themselves from the dollar hegemony but to establish the parameters of a new kind of mutually beneficial and complementary trade relations. It is in this context that we can better understand why Latin America, at this moment and apart from its natural and energy resources being coveted by the global power centers, adopts special importance for the United States. A regional alliance like ALBA, with its own currency for trade and financial transactions, constitutes doubtlessly another nail in the coffin of dollar hegemony. This is at least one of the reasons for which, in the near future, the government of the United States will be pointing its guns against us, from Colombian territory.


Notes

(1)  http://www.alternativabolivariana.org/modules.php?name=News&file=article&sid=3730

(2) ibidem.

(3)  http://www.alternativabolivariana.org/modules.php?name=News&file=article&sid=5107

(4) Hon. Ron Paul of Texas Before the U.S. House of Representatives, February 15, 2006;  http://www.house.gov/paul/congrec/congrec2006/cr021506.htm
(5) Oil Bourse Opens in Kish;  http://english.farsnews.com/newstext.php?nn=8611290655
(6)  http://www.unctad.org/Templates/Webflyer.asp?intItemID=1397&docID=11867