Today, let's discuss the historical background of the US dollar and its future destiny.
During World War II, the United States amassed a fortune through war, with gold reserves of about 30,000 tons, accounting for more than 75% of the world's total gold reserves. Consequently, in 1944, the United States decided at the Bretton Woods Conference to peg the dollar to gold, with one ounce of gold exchangeable for 35 dollars, establishing this as the foundation of the international monetary system. From then on, the dollar became synonymous with gold, and gold with the dollar, gaining international recognition, and the dollar began to circulate globally.
Why did the world recognize the value of the dollar? The fundamental reason was that the US government had to issue an equivalent amount of currency based on the reserves of gold. The dollar was anchored to value, and the United States dared not print dollars indiscriminately.
However, by 1971, due to domestic inflation and the Vietnam War, among other reasons, the United States announced that it would stop exchanging gold with foreign countries, thus ending the direct link between the dollar and gold. Subsequently, under the guise of oil for security, the United States obtained the agreement of Saudi Arabia and other countries to tie the dollar to oil, a decision known as the "Petrodollar Agreement."
Why did the United States do this? The fundamental reason was a lack of money. If the dollar was pegged to gold, it certainly could not print more dollars, which limited the development of the US economy. After the dollar was tied to oil, with the vast reserves of oil at the time, the United States used the massive issuance of dollars to address domestic economic development and military funding needs. Moreover, oil is also the world's most important resource, on which everyone relies heavily. Not being able to do without oil also means not being able to do without the dollar. The dollar began to shift from value anchoring to resource anchoring.
At this point, it became clear that the dollar had lost its value attribute and turned to resource attribute. With dollars, you could buy the most important oil resources globally. This decision led to a significant transformation in the international monetary system and was an important turning point in modern world monetary policy.
It can also be said that this decision doomed the dollar to a crisis of trust in the future, and the global move away from the dollar is inevitably a certainty. Let's continue to look ahead.According to data from the Federal Reserve of the United States: as of June 2021, the U.S. money supply (M2) was 20.8 trillion U.S. dollars, while in 1971 when the U.S. dollar decoupled from the gold standard, the U.S. money supply was only about 0.8 trillion U.S. dollars. Therefore, since 1971, the over-issuance of the U.S. dollar is approximately 20 trillion U.S. dollars, more than twenty times the amount, which is also one of the most severe periods of U.S. dollar over-issuance in recent decades.
Furthermore, during the period when the U.S. dollar was pegged to gold, such as in the 1950s to 1960s, the inflation rate in the United States was about 2%; however, during the period when the U.S. dollar was pegged to oil, such as in the 1970s, the inflation rate in the United States once reached as high as 10%.
What does this indicate? It indicates that the United States has been amassing wealth globally through the hegemony of the U.S. dollar, and the wealth reaped is used by the U.S. to increase public welfare on one hand, and on the other hand, to enhance talent recruitment and military construction. While harvesting global wealth, the U.S. is also strengthening its military power. The U.S. believes that this policy of combining carrots with sticks will allow it to continue to lead the world, but the mistake lies in the fact that the U.S. has forgotten the essence of the U.S. dollar.
During the period when the U.S. dollar was pegged to oil, the U.S. unknowingly became a major oil producer, and at this time, the U.S. reduced its dependence on Saudi Arabia. At the same time, some Arab countries also believe that the autocratic regimes supported by the U.S. in the past do not align with democratic and human rights values, leading to a rejection of the U.S. Moreover, due to the involvement of China and Russia, the U.S. interests and influence in the Middle East are gradually diminishing.
At this point, the U.S. no longer provides unconditional military support and protection to countries such as Saudi Arabia, and the exchange of oil for security has become an empty talk. This is also one of the reasons why many oil-producing countries use their own currency or the Chinese yuan to settle energy transactions.
Speaking of which, the U.S. has forgotten the essence of the U.S. dollar, which is the abandonment of the gold and oil standard monetary policy. The current monetary policy is entirely supported by credit and debt. But what is the creditworthiness of the U.S. now?
This brings us back to the topic at the beginning. The U.S. debt has reached its limit and is facing the possibility of default. The current debt scale of the U.S. is 31.4 trillion U.S. dollars, and it is not guaranteed to reach 50 trillion in the future, while the U.S. GDP for the whole of last year was only 25 trillion U.S. dollars. This means that the U.S. is not earning money fast enough to keep up with its debt, and it can be said that the credit of the U.S. is virtually non-existent.
Under these circumstances, if the U.S. wants the dollar to continue its global hegemony, the only way is through military strikes and economic sanctions. This is why the U.S. is so heavily supporting the Russia-Ukraine conflict, as there are interests at stake. Secondly, this is also why the U.S., despite being preoccupied with its own problems, still does not forget to limit and suppress our country's economic development at the cost of self-harm.
However, whether it is military strikes or economic sanctions, these can only suppress and will not convince others. Moreover, such actions will only accelerate the pace at which countries move away from the U.S. dollar. This is the fundamental reason why countries have accelerated the process of de-dollarization since the Russia-Ukraine conflict.If the United States wishes for the US dollar to continue its global hegemony, the only viable course of action is to adopt an open trade policy, enhance international cooperation, and work with other nations to propel the development of the global economy. Additionally, it is imperative to manage the currency issuance effectively to prevent the occurrence of inflation.
