The erosion of the dollar as a global currency by the Chinese yuan is pushing U.S. capital towards the globalization of war as much or more than the war in Ukraine itself.
Why is it so important for US capital for the dollar to remain the global currency?
U.S. public debt
The use of the dollar as the international reserve currency is the touchstone of US imperialist dominance. This power is articulated in three ways:
1 Having the other powers use the US currency is tantamount to holding a massive line of credit, always available and at no relevant cost. Does the state incur a deficit? Currency is issued which is immediately absorbed by global trade. This practice has allowed the US to operate fiscal deficits that would have been unsustainable for allies and rivals since 1945 without surpassing, until the pandemic, 100% debt over GDP.:
In other words, during the Cold War the US successfully passed on the cost of its own militarism to its rivals and allies using the dollar as a Trojan horse. And it hoped now, in a new phase of unbridled militarism, to be able to do the same.
2 It gives US companies the possibility of borrowing cheaply in third countries in their own currency without suffering exchange rate risks. Basically: it transfers part of the US investor's risk - the country risk - to the recipient of that investment, increasing the profitability and security of the export of capital which is at the heart of imperialist development.
3 It allows the US to support the obedient semi-colonial countries with liquidity at minimum cost. Because of their position on the world market the national capital of these countries lives perennially under the threat of a monetary storm. The availability of liquidity with which to buy their own currency and maintain its value in times of instability is fundamental for their central banks and the pace of accumulation.
China's patient encirclement of the dollar
Fernández closes a swap deal with Xi in Beijing at the opening of the Winter Olympics this year.
As part of its imperialist battle against the US, China has been engaged in a long-running encirclement of the dollar for years, trying to give weight to the yuan in international trade and displacing the dollar in the currency packages hoarded by central banks.
As we already commented this week, part of the Chinese strategy has consisted of supporting the stability of the currencies of third countries through swap credits such as those received by Argentina under Macri and Fernández, by Piñera's Chile since 2015, by Brazil under Bolsonaro or by Portugal under Costa.
This technique already used by most ASEAN countries is actually a credit line in yuan that allows the respective central bank to buy its own currency in yuan to avoid devaluations. The credit is then repaid, with its margin, in the form of a yuan purchase by the central bank of the country in question.
In this way, China is introducing the yuan into the reserves of an increasing number of countries. For the Chinese state, this is not only a way of placing capital and securing its influence in semi-colonial countries, it also allows it to begin to enjoy a share of global power that until now only the USA, and to a much lesser extent, the European powers through the euro, enjoyed.
What is changing with the war in Ukraine?
Salman and Putin agree in March 2018 on a "ten- or twenty-year partnership" to stabilize oil prices.
The ban by the US, followed immediately by Britain and - partially - by the EU, on buying oil and gas in Russia has had the immediate effect of raising oil and gas prices from other sources.
To escape the brutal effects which rising prices threaten to cause in the economies of its allies, the US played with Emirates to increase OPEC oil and gas production. The move undermines the strategies pursued by Saudi Arabia and Russia to maintain a relatively stable price level with lower production. These strategies are fundamental for most oil producing countries, especially Saudi Arabia, to be able to overcome their internal crisis -explicit since 2020- and reorganize their national capital for the consequences of the Green Deal.
Saudi Arabia's response has been to establish negotiations with Beijing, opening the door to accept payment in yuan for its oil sales to China (and potentially to other countries). China, in fact, has every incentive to pay slightly above the market price as long as it does so in yuan. In fact it could agree to pay an extra even higher than the exchange and transaction costs it saves, as it reduces exchange risks.
And if this is profitable for China from the narrowest mercantile point of view, there is no doubt that it certainly is so from the perspective of its imperialist interests in the medium and long term: paying for oil in its own currency would break the monopoly of the dollar in the energy market. It would, in fact, be its greatest triumph against the US so far.
But the most important blow could come from India. The Modi government has so far resisted imposing sanctions on Russia and plans to continue buying oil from its old ally. The problem is that neither partner's own currency is an example of stability. As long as the EU and the US keep launching barrages of sanctions they are not even going to go toe-to-toe in their swings. They need a third currency. And using the dollar or the euro would be paradoxical, so according to Chinese press reports, they are considering using the yuan.
The erosion of the dollar's global economic power is pushing the US to pursue increasingly aggressive policies
For the dollar, losing its monopoly of the energy market in Asia is not a minor inconvenience in its economic war against Russia. Nor is being weakened in the reserves of dozens of central banks. It is a real threat. If China knows how and has the financial capabilities to play the trick, a good part of Asia and South America could find advantages by balancing their dependence on the dollar with the use of yuan in their international purchases.
For the US it is a global and direct threat of much greater depth than the Russian invasion of Ukraine. Both AUKUS and the EU are entering a phase characterized by the accelerated development of militarism and the outbreak of the first attempts at armed confrontation with their rivals.
In this context, seeing the tools that historically allowed Washington to pass the costs of the imperialist contest on to allies and rivals restricted adds a new element of urgency and violence to the imperialist perspective of the US, ever closer to losing an advantage over its main rival, China, which until recently it took for granted.
The crisis of the dollar as a global currency pushes US capital towards the globalization of war as much or more than the war in Ukraine itself.