Today, if an exporting country exports its oil to a European country worth one billion euros. This amount of euros enters world trade when its dollar value is determined in the United States. Otherwise, this one billion euros is not worth trading in world markets. Therefore, the need for dollars and the storage of dollars in the central banks of the world is the only way to determine the value of the national currency. Countries have no choice but to increase their exports to the United States or invest in the United States to seek dollars or more reserves. In the process, they even accept the inflation of the dollar, so that they can participate in world trade.
America in the process of embedding the dollar in world trade; Completing the energy and shipping security supply chain; It also expanded its military dominance in the security sector, making the nations of the world dependent on energy security and shipping during the Cold War forcing them to accept the dominance of the dollar.
After World War II, representatives of 44 countries in 1945 to increase economic growth and keep their currency stable or strengthen their currency; Under the Bretton Woods system, two major organizations, the International Monetary Fund and the World Bank, were created. As the victor of the war, the United States gained the privilege in this meeting that the value of an ounce of gold should support the dollar and the value of the national currency of the countries against the dollar should be regulated and stabilized. Initially, the value of each dollar was set at $ 35 per ounce based on the price of gold. But the system collapsed in 1970 due to a lack of gold to support the dollar.
In 1971, gold left the dollar and paper dollars were sent to world markets. For the past half century, the dollar has been used as a political currency in world trade, and is still being accepted by US and other strategic partners.
Whereas commodities, including oil and gas, were traded in dollars from the beginning; Demand for the dollar has always been on the rise. The oil shock of the 1970s, which multiplied oil prices, plunged large importing industrial countries into economic crisis. But at the same time, the demand of oil-exporting countries for more dollars forced the US Treasury to print more banknotes, which started inflation in the world. These conditions led the economies of oil-buying countries, like Japan and Germany, to high unemployment and recession.
The United States did not suffer from an inflationary economy. Because by creating a trade balance deficit with their trading partners; It increased their need for dollars. Thus, over the decades, US economic partners who exported more to the United States received paper dollars or credit dollars from the United States. In fact, exporters export their goods to the United States for free because they receive only dollars or bonds for their exports.
Bonds are issued by the US Treasury for budget deficits and lent to domestic or foreign customers who have support or dollar savings with US banks and assign with profit. So today, the United States lives on the money it earns from selling dollars without backing or bonds. In other words, part of the payments related to foreign exports to the United States are made through bonds that are the debt of the US government and people.
China and Japan and some powerful industrialized nations have to prevent the dollar from falling and the world financial system from collapsing; Not only they should buy US dollars and bonds, but also when bond prices fall, they still have to buy more bonds to keep their bonds from falling. China alone has the highest positive trade balance and dollar reserves in the world.
In present situation, the undisputed position of the US leadership in the post-World War II world, which was based on the two axes of countries’ dependence on energy security to be supplied by US military forces and the role of the dollar in world trade, has been challenged by strong shocks from Russia and China.
If Trump is forcing countries to invest in the United States or buy energy from the United States today, it is only because of a trade deficit with countries and US private and public sector debt that is crossing national GDP, has reached a dangerous and explosive stage and could plunge the United States into a more dangerous recession than the first decade of the third millennium or the fall of Wall Street again.
Trump’s insistence on investing in the United States is because the US Treasury is confident that US debt and budget deficits have exploded and that, economically powerful countries such as China, India, Russia and even Europe will make another decision, they will choose this predictable option that gradually remove the dollar from their economic cycle with a replacement currency or purer transactions. Or at least try not to give their foreign exchange reserves to the US Treasury and reduce their dependence on the dollar by buying gold. China and the Central Bank of Russia are planning to increase gold reserves, and Moscow has made the largest purchase of gold in 2019.
Trump is well aware that in such a situation, the dollar which supports US military and economic power will lead US economic and military to collapse.
Trump’s insistence on China buying US oil and gas is to keep China, as one of the world’s largest economies, dependent on the US and the dollar to eventually prevent an alternative currency to the world dollar. China has also agreed to buy $ 200 billion worth of US agricultural, energy, industrial and financial services over the next two years in a new deal with the United States to maintain its global economic power.
The European Union (EU) has already expressed concern about an initial trade agreement signed between Beijing and Washington that could upset the trade balance to the detriment of European companies, and has even threatened to turn to the World Trade Organization.
China and Russia, with long-term cooperation, as well as Britain with the exit from the European Union, have heard the alarm bell of the irreparable economic recession in the United States earlier than other countries. At the beginning of the third millennium, China and Russia began long-term cooperation with less dependence on the dollar. Since 2014, the presidents of China and Russia have signed a 30-year agreement to supply 30 trillion cubic meters of Chinese gas from Russia worth $ 400 billion. In January 2019, the second China-Russia oil pipeline was put into operation and Russia became China’s largest oil supplier.
Political pipelines that transport natural gas and oil around the world have become major players in political and economic change in the world and are moving from geopolitics to geo energy. The pipeline from Russia to China, the world’s largest energy pipeline, provided such an advantage that it took the political balance in Russia to such an extent that it favored the Kremlin and it forced Putin to reconsider the political and traditional structure of Russia to maintain and institutionalize that power and advantage.
Russia and China, which are becoming the world’s energy hubs and energy consumption, have easily challenged the United States’ commitment to energy security. Oil and gas that Russia sold to Western countries, got political and economic instability as well as sanctions for Russia; Russia now exports to China with an eastward orientation and buys a stable economy and political power.
Russia, China and India with economic growth and a multi-billion-dollar market, have the potential to barter trade or dollar alternative currency and the price of which can be determined based on the world price of energy or gold, get rid of dependence on the dollar, or at least exchange or refine oil outside the defined dollar baskets in world trade. This method can be a model for future global trade.
by William Holmes