In a 1965 press conference, the visionary General de Gaulle denounced the “exorbitant privilege of the dollar”. The American currency had indeed become by far the world’s leading reserve and exchange currency, after the United States had agreed, from 1946 to 1971, to exchange it for gold at the fixed rate of $35 per ounce.
For the constitution of their reserves, the central banks obviously threw themselves on the dollar, whose deposits were as stable as gold, but obviously more easily manageable. When the Americans were printing money, it was as if they were producing gold.
De Gaulle had understood that they were financing their war in Vietnam and their conquest of space on the backs of Europeans. This is why the Bank of France, as early as 1965, began to systematically exchange its dollars for gold. On August 15, 1971, America abruptly decided, without warning any of its allies, to put an end to the convertibility of the dollar into gold.
From 1973 onwards, a year marked by a very sharp rise in the price of oil (a raw material still invoiced in dollars), the problem of petrodollars arose. The enormous sums generated by the energy markets were reinvested primarily in the American markets, giving the US economy a comparative advantage, to the great frustration of its European partners.
“The dollar is our currency, but it’s your problem,” warned Treasury Secretary John Connally shortly after the unilateral suspension of the dollar’s convertibility to gold.
Created in 1999, the euro succeeded as a global currency, but could not match the depth and liquidity of the New York markets because of the lack of a single European Treasury. The euro did not dethrone the dollar as the world’s primary reserve and trading currency.
The international financial crisis of 2008 was entirely the responsibility of the United States, which paradoxically strengthened the dollar. In a press conference in March 2009, Barack Obama predicted that the dollar would retain its dominance in global trade and reserves.
His argument was not economic but political: “Because America has the most stable and transparent system in the world! Indeed, everyone understands how the American budget, Federal Reserve and financial system work, whereas their Chinese counterparts appear opaque. The dollar remains the safe haven currency par excellence. When there is a global financial crisis, investors take refuge in the dollar, even if the crisis is American in origin. This is what happened in 2008-2009, when the dollar revalued against the euro and the yen. Today, it still represents 59 per cent of the world’s foreign exchange reserves (compared to 72 per cent in 1999).
But by turning their currency into a weapon of political pressure, the Americans have unwittingly started a worldwide movement to dismiss the dollar king.
In 2014, BNP had to pay a nine billion dollar fine to the United States for having, legally under European and French law, financed (in dollars) exports from Cuba, Sudan and Iran. But these three countries were under American embargo. As the compensation was made in New York on the account of BNP (an electronic entry of a millionth of a second), the American justice system declared itself territorially competent.
This is how the Americans imposed their law on the other countries of the planet.
And European companies had to comply, as we saw when they left Iran in 2018, after Trump unilaterally terminated the 2015 Vienna nuclear agreement.
The next step in the “weaponisation” of the dollar was, in 2022, after Russia’s aggression against Ukraine, the freezing of the Russian central bank’s dollar-denominated foreign reserves. The non-Western leaders said to themselves: “If I am at war with a neighbour and this conflict does not please Washington, I can suddenly lose a large part of my foreign exchange reserves. So I will drastically reduce my trade in dollars.
This is what Russia is now doing, but also Saudi Arabia. Its last oil bill to China was denominated in renminbi (whose offshore market is already worth the equivalent of $200 billion).
Moreover, the BRICS (Brazil, Russia, India, China, South Africa) are considering creating their own currency to finance their trade. China has already developed its own electronic interbank settlement system. It offers an alternative to the SWIFT system, a co-operative controlled by the West.
The de-dollarisation of the world will not be completed overnight. But it is clearly an irreversible movement.
This article was first published in Le Figaro.