Can the World Really Abandon the Dollar As A Reserve Currency?
By Martin Armstrong
Throughout history there has always been a dominant currency. As each empire became the new financial capital of the world, their currency became the most prized and tended to circulate around the globe into even the fringe economies that they may have never heard of at that moment in time. Roman Coins made it China and there was even the attempt to establish diplomatic relations with China in 180AD as the Chinese historical records prove. Rome was very much like the United States today. It was the largest world economy with a huge consumer base. Even Cicero warned about the trade deficit in 55BC.
Rome was feasting on Asian imports of spices and fine silk. Even the Emperor would not allow anyone to wear the color purple, also an import from Asia. The Silk Road predates even Rome. There was trade between east and west well before even the rise of the Greeks. This is why we find imitations of Greek and Roman coins made in distant lands that are not attempts to counterfeit, but to expand the local supply of such foreign coins that became popular.
The US dollar has filled that same role. When communism fell, dollars became the number one circulating medium of exchange in Russia and China. There were even Congressional hearings on the exportation of dollars to foreign lands. History repeats because the passions driving mankind never change.
It became the dollarization of the world economy just as it had been in ancient times with every dominant economy. The dollar became globalized in part because the USA also never cancelled its currency as was the routine case in Europe. Nations cancelled their currencies to force people to come clean and pay taxes. Some naturally blamed the New York Federal Reserve. Others blamed Soros’s currency warfare against the pound akin to invading shock troops, deployed to destroy resistance in the form of national credit. All of these wild accusations assumed two erroneous positions: (1) Somehow this was benefiting the USA, and (2) the British pound would not have cracked its peg but for Soros. The conspiracy nuts argued that this was some sort of a plot of repeated, successive assaults on the European Exchange Rate Mechanism which began in the summer of 1992. They were claiming the USA was seeking the dollarization of the world as a precursor to the kind of arrangements for world domination.
True, dollars were being shipped out of the United States in record amounts, not only through transactions in the drug trade and illegal economy, but also through the Federal Reserve Bank of New York, in collaboration with Citibank and Republic National Bank of New York of Edmond Safra. The U. S. supply of physical dollar bills was $348 billion. The hoopla was claiming $190 billion had left the United States. Prior to the collapse of Communism in 1989, the amount of dollars outside the USA in physical form was about $80 billion. At the time, about $20 billion in physical US dollars were in Argentina as people there did not trust the government and preferred dollars. Dollars accounted for 70% of Bolivia’s money supply during the 1980s. Dollars were being hoarded everywhere. They were the black market in Vietnam for nearly a decade after Americans left. Business Week Magazine reported in its Aug. 9, 1993 issue that there may be as many as $20 billion in physical U.S. dollars in Russia. All of this was cast as some giant conspiracy of the United States to somehow take over the economy worldwide. The imagination knows no bounds.
The only trend at work here is the same thing why people are buying gold. When you do not trust the government, you seek alternatives. From ancient times, fringe countries have sought the money of the dominant economy. It has never been some clandestine plot – just human nature. All of these countries that the conspiracy theorists were so concerned about and blaming the USA, were politically in turmoil. People in such conditions seek to preserve capital the same as people buy gold right now.
Even when we go back into ancient times, we see that the coins of the core economy were even imitated rather than counterfeited to facilitate the local economy. Athens produced a tetradram that became known as an Owl. They have been found in Europe and Asia. They are among the first coins to be imitated in other fringe economies. This demonstrates that it was not a question of being able to produce coins, but what people were accepting as a known value. Hence, Athenian Owls became one of the earliest standards.
Gold Staters of Philip II (382-336BC) of Macedonia were imitated by the Celts in Britain, in Gaul (France) and even by the Swiss (Helvetii). They too became a wildly recognized coin that was frequently used in trade. Therefore, Philip II gold Staters still surface in Europe and Asia today.
Imitations of Roman coinage are widespread throughout the Republican and Imperial era. Here is an imitation struck in India illustrating just how far Roman coinage circulated. Note that while the Roman Gold Aureus that is being imitated weighed 7.1 grams, the Indian imitation had a weight of 11.3 grams. Clearly, these are not attempts at counterfeiting but creating coins that were recognized to be of value even by a foreign state.
Imitations of Roman coins continued into the 4th century and exist from Asia to the northern Barbarian tribes. Here we have an imitation of a Gold Solidus of Valens (364-378AD) struck in Germany. Again, this is not an attempt to counterfeit for the weight is spot on running 4.3 grams.
Here we have a Visigothic imitation (Spain) of a Gold Solidus of Honorius (393-423AD) Once again the weight is spot on reflecting this is to supplement the current money supply rather than attempt to counterfeit the coinage.
Here we have a Burundian imitation of Valentinian III (425-455AD) Gold Solidus. Once more we see that the weight is spot on and hence this is not an attempt to counterfeit but to supplement local coinage.
These issues demonstrate the difference between a core economy and the fringe. The currency of the dominate economy is widely accepted in foreign lands. This is a critical point to understand for this goes to the heart of the debate about the dollar and its “reserve” status. There are two primary points. (1) The dollar is used in international trade more than any other currency, and (2) its “reserve” status is where money simply parks.
The United States wants to eliminate cash so they can collect every penny they imagine is missing from their revenue expectations. If we are EVER going to really revise the world monetary system, we have to stop the nonsense of picking pieces from history to support predetermined ideas and just follow the facts to understand how this function. The Marxist approach was to try to dictate how the economy should function in his mind and to force that to take place by political decree. That concept was adopted by Keynes and is still with us today manifesting in every corner based upon predetermined biases. The dollar is by no means going to fade away. China will not replace the dollar as a reserve currency until debt is no longer used as reserves by nations. There is a separate and distinct difference between the currency being used in trade and the currency being used to store wealth. They do not have to be the same thing and are entirely two different animals.
Until debt ceases to be money that simply pays interest, the dollar will not vanish as a reserve currency. There is no replacement as of yet. Even when China becomes the largest economy, that will not displace the “reserve” status of the dollar until there is a deep market to park cash. That is separate and distinct from trade being conducted in a variety of currencies. We have to revise the world monetary system. When we reach that point, then we can deal with creating an alternative for a “reserve” currency that is entirely distinct from trade currencies. Even the USA had two currencies during the 19th century – the domestic silver dollar and the international heavier trade dollar on par with international standards. Two tier monetary systems have commonly existed for a very long tome.
