Crack on US dollar hegemony is growing

The ambitious infrastructure plan of the US President Joe Biden was downsized, from the original $2.3 trillion to $1.7 trillion, which apparently is still not enough to gather support from the Republicans. Many American economists criticize that the Federal Reserve has run out of options after pouring money in the market and inflation hitting very high levels.

Meanwhile there are numerous data that suggest that the status of the US dollar as a reserve currency around the world is being weakened by the euro, Japan’s yen and China’s yuan. The deadly COVID-19 pandemic also intensified the decline of US dollar hegemony.

As indicated by the IMF, the share of euro reserves held by global central banks stood at 21 percent in the fourth quarter of 2020, the same level as six years before; while the share of US dollar dropped to 59 percent, the lowest level in 25 years.

International financial institutions are voting with their feet, alleging that the US is deceiving the world with its dollar and living a “rich and rich alone” life by devaluing its currency and borrowing without limit.

The unrestrained borrowing from the US government, together with Federal Reserve’s unlimited quantitative easing measures, have directly caused the irrational soaring prices of international commodities, especially copper, aluminum and iron ore among other commodities for which China has been the biggest buyer. However, the economic common sense tells us that the global economy has been hit by the coronavirus for over a year and the fundamentals simply do not support a cyclical commodity price boom.

The increasing cost of raw materials will only mount more pressure on the living standards of the low to middle-income classes in the world.

The rising price of commodities is a financial phenomenon caused by the excessive dollar stimulus but the impact on the real economy has already been evidenced in increasing manufacturing costs around the world.

On the other hand, the pandemic has caused a reduction on people’s income. With a slow recovery in consumption, manufacturers have lost bargaining advantages down the supply chain. Instead of shifting the cost pressure of rising commodity prices to consumers, they might have to bear the loss.

As the real economy is undermined by the hegemony of the US dollar, insightful politicians and businessmen from all over the world have started to discuss how to crack the hegemony of the US dollar.

China’s yuan has been a major “driving currency” that has boosted the growth of global economy over three decades. However, its share as a foreign exchange reserve in the world has just exceeded 2 percent. Cracking the monopoly of the US dollar cannot depend mainly on the Chinese yuan but its potential cannot be underestimated as it recorded the highest strategic growth in foreign exchange reserves in the 21st century, in addition to the Special Drawing Rights (SDR) from the IMF.

World economies are looking forward to a new global monetary order that is impartial and reflects supply and demand in the real economy. Only the US is still expecting to benefit from a currency war in the 21st century while the rest of the world is looking to make money a neutral instrument for trade, rather than relying on monetary signals to guide or dominate the economy.

The pandemic has accelerated this trend. The IMF decided to issue $650 billion SDR in April, to aid developing countries during financial crisis. The world is entering the post-COVID era with a high probability that certain countries may suffer currency crises similar to those in 1997 and 2011. This requires central banks around the world to fully support the IMF through monetary policy coordination to help stabilize global economic recovery.

The US will never give up the hegemonic system of the dollar easily and will block financial cooperation among countries through various means. World economies should firmly promote mutually beneficial opening-up of financial markets and enhance currency swap agreements between central banks. Through economic globalization, the dollar hegemony can be broken.

The article was compiled based on a commentary written by Xu Weihong, Chief Economist at Yongxing Securities. bizopinion@globaltimes.com.cn

The US dollar’s hegemony is looking fragile

The modernisation of China’s exchange-rate system could deal the currency a painful blow

The mighty US dollar continues to reign supreme in global markets. But the greenback’s dominance may well be more fragile than it appears, because expected future changes in China’s exchange-rate regime are likely to trigger a significant shift in the international monetary order.

For many reasons, the Chinese authorities will probably someday stop pegging the renminbi to a basket of currencies, and shift to a modern inflation-targeting regime under which they allow the exchange rate to fluctuate much more freely, especially against the dollar. When that happens, expect most of Asia to follow China. In due time, the dollar, currently the anchor currency for roughly two-thirds of world GDP, could lose nearly half its weight.

Considering how much the United States relies on the dollar’s special status – or what then-French Finance Minister Valéry Giscard d’Estaing famously called America’s “exorbitant privilege” – to fund massive public and private borrowing, the impact of such a shift could be significant. Given that the US has been aggressively using deficit financing to combat the economic ravages of COVID-19, the sustainability of its debt might be called into question.

The long-standing argument for a more flexible Chinese currency is that China is simply too big to let its economy dance to the US Federal Reserve’s tune, even if Chinese capital controls provide some measure of insulation. China’s GDP (measured at international prices) surpassed that of the US back in 2014 and is still growing far faster than the US and Europe, making the case for greater exchange-rate flexibility increasingly compelling.

A more recent argument is that the dollar’s centrality gives the US government too much access to global transactions information. This is also a major concern in Europe. In principle, dollar transactions could be cleared anywhere in the world, but US banks and clearing houses have a significant natural advantage, because they can be implicitly (or explicitly) backed by the Fed, which has unlimited capacity to issue currency in a crisis. In comparison, any dollar clearing house outside the US will always be more subject to crises of confidence – a problem with which even the eurozone has struggled.

Moreover, former US President Donald Trump’s policies to check China’s trade dominance are not going away anytime soon. This is one of the few issues on which Democrats and Republicans broadly agree, and there is little question that trade deglobalization undermines the dollar.

Chinese policymakers face many obstacles in trying to break away from the current renminbi peg. But, in characteristic style, they have slowly been laying the groundwork on many fronts. China has been gradually allowing foreign institutional investors to buy renminbi bonds, and in 2016, the International Monetary Fund added the renminbi to the basket of major currencies that determines the value of Special Drawing Rights (the IMF’s global reserve asset).

In addition, the People’s Bank of China is far ahead of other major central banks in developing a central-bank digital currency. Although currently purely for domestic use, the PBOC’s digital currency ultimately will facilitate the renminbi’s international use, especially in countries that gravitate toward China’s eventual currency bloc. This will give the Chinese government a window into digital renminbi users’ transactions, just as the current system gives the US a great deal of similar information.

Will other Asian countries indeed follow China? The US will certainly push hard to keep as many economies as possible orbiting around the dollar, but it will be an uphill battle. Just as the US eclipsed Britain at the end of the nineteenth century as the world’s largest trading country, China long ago surpassed America by the same measure.

True, Japan and India may go their own way. But if China makes the renminbi more flexible, they will likely at the very least give the currency a weight comparable to that of the dollar in their foreign-exchange reserves.

There are striking parallels between Asia’s close alignment with the dollar today and the situation in Europe in the 1960s and early 1970s. But that era ended with high inflation and the collapse of the post-war Bretton Woods system of fixed exchange rates. Most of Europe then recognized that intra-European trade was more important than trade with the US. This led to the emergence of a Deutsche Mark bloc that decades later morphed into the single currency, the euro.

This does not mean that the Chinese renminbi will become the global currency overnight. Transitions from one dominant currency to another can take a long time. During the two decades between World Wars I and II, for example, the new entrant, the dollar, had roughly the same weight in central-bank reserves as the British pound, which had been the dominant global currency for more than a century following the Napoleonic Wars in the early 1800s.

So, what is wrong with three world currencies – the euro, the renminbi, and the dollar – sharing the spotlight? Nothing, except that neither markets nor policymakers seem remotely prepared for such a transition. US government borrowing rates would almost certainly be affected, though the really big impact might fall on corporate borrowers, especially small and medium-size firms.

Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow.

 Kenneth Rogoff is professor of economics and public policy at Harvard University. He was the chief economist of the International Monetary Fund from 2001 to 2003.

Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy

China’s recent introduction of yuan-denominated oil futures has attracted some fairly extensive press commentary. Partly this is down to a habit of over-interpreting everything happening in China as just more evidence of their unstoppable rise to global superpower status, but it is also due to some profound misconceptions about the importance of oil as a commodity. It is widely thought, for example, that oil somehow underwrites the global financial system and guarantees the U.S. dollar’s hegemonic status.

Inevitably, stories about the toppling of the “Petro-dollar” and the long yearned for rise of an alternative reserve currency, one not dependent on the whims of a capricious political elite in Washington, have proliferated across the alter-net and on the state-backed media platforms of Russia and China.

But we should be clear: the Petro-dollar does not exist, and really hasn’t done in any meaningful way since the 1970s, therefore the “Petro-yuan” has no future. This is not to say that oil will never be traded in yuan, that is likely, but it is to say that trading oil in yuan will not suddenly transform the currency into the global reserve many claim is inevitable. 1

Origins Of The Petro-Dollar

The myth of the Petro-dollar comes from efforts in the 1970s to prevent the U.S. suffering severe negative effects in its balance of payments from rising oil prices.2 Until the late 1960s the U.S. had been an oil-exporter, but by also being an oil consumer they had never sought to maximize the rent from oil production by driving prices upwards. OPEC countries, however, never had such qualms 3 when the opportunity arose as the U.S. became an importer, happily restrained supply to drive prices, and their own national incomes, higher. The U.S. was worried about the resultant trade deficit caused by suddenly having to pay vast amounts for necessary imports, and so secured the agreement of Saudi Arabia to only trade oil in U.S. dollars, meaning the U.S. could pay for oil in their own currency. Saudi Arabia, for their part, accumulated huge reserves of U.S. dollars, investing some of them back into the U.S. economy.

The enormous lake of U.S. dollars this created augmented the role of the dollar as the global reserve currency, being a highly liquid, easily-exchanged claim on the products, services and investment potential generated by the U.S. economy. But this was merely one step in the rise of the greenback as the global reserve. The next step came when other economies–East Asia in particular–followed the lead of the oil producers and also built up huge reserves of U.S. dollars, all of which was made possible by the abandonment of the Bretton Woods fixed exchange rate system in the early 1970s. This practice helped to keep exchange rates for exporters low, and kept a lid on inflation in the U.S., which suited everyone up to a point.

Future Petro-Yuan?

Bringing this up to date, it was a long time ago when the link between oil and the dollar mattered much at all beyond the financial returns of non-dollar based oil companies. Since the 1980s, the dollar has been consolidated as the global reserve currency because of the strength and dynamism of the U.S. economy, and oil exporters have demanded to be paid in U.S. dollars because that’s the currency they prefer to hold on to. To do otherwise is to take on exchange risk. Exporters can, and routinely do, accept payment in whatever exchange medium they wish — tanks, planes and construction services — but their central banks demand dollars for reasons entirely unconnected to oil. Because the U.S. dollar is a hard currency, easily exchangeable, underwritten by the U.S. taxpayer, and founded upon decades of broadly consistent macro-economic policy management.

Those who believe that oil being traded in U.S. dollars gives the U.S. economy a unique advantage in the global economy have it exactly the wrong way around. The U.S. economy is the central economy in the global system because it is the most open, innovative, and productive economy in the world, and because of this, the U.S. dollar is the most convenient, liquid and reliable medium of exchange. 4 One can imagine another currency challenging it at some point in the future, but only on the basis of the openness of its underlying economy, and the depth of the capital markets denominated in it. And if the euro can’t do it yet, why does anyone imagine the yuan is up to the job?

Furthermore, the U.S. dollar’s position as the global reserve currency has been underwritten by Chinese economic policy. China has deliberately built up a huge pile of U.S. dollar-denominated reserves which, contrary to much press coverage and occasional threats of a big selloff from China, confirms rather than undermines the dollar’s status.

Yuan-Denominated Oil Futures?

When China, like any other economy, allows the trading of oil futures in yuan, the contract merely promises dated delivery of oil in exchange for yuan. The contract does not supply the oil, it does not forward the yuan to an oil producer, it is merely a transaction that allows a buyer guaranteed delivery of oil by paying for it in yuan. The counter-party has to supply the oil in exchange for the yuan. Somewhere along the supply-chain someone will be paying in U.S. dollars, unless the ultimate supplier wishes to hold yuan. And despite the fanfare over the last few years, the yuan still comprises a tiny share of foreign exchange reserves held globally. Indeed, at 1.1% of the total, the yuan is significantly behind both the Australian and Canadian dollars, meaning that–with pound sterling–Queen Elizabeth II’s head appears on 7.5 times more foreign currency reserves than Mao’s. If China wants to change that, it will need to open up its economy, liberate its capital account and start living up to, rather than repudiating, its reform promises. Shanghai-traded oil futures in themselves have nothing to do with it.


  1. (It may be true that the Petro-yuan has no future, or that a change won’t be “sudden”, but this doesn’t prove that having oil trade in dollars isn’t still very important to the US)

  2. (Couldn’t it be said that the cause of these deficits was also, in part, cold war military spending and the Vietnam war

  3. (To portray this as financial opportunism by OPEC ignores other factors, such as the US’s significantly increasing the price it charged for wheat and supporting their enemy – Israel).  Whether you approve or disapproval, isn’t it simplistic or misleading to attribute oil price increases to the idea that “OPEC never had such qualms”.

  4. (This is the argument that the US Dollar deserves its dominance and the advantages the petrodollar gives it, not that it is unimportant to the US that oil trade in dollars)

Michael Hudson – De-Dollarization–Toward the End of the U.S. Monetary Hegemony?

On 20 November 2019, Professor Michael Hudson delivered a lecture on “De-Dollarization–Toward the End of the U.S. Monetary Hegemony?” in Lingnan University, Hong Kong, China. The moderator was Professor Peter Beattie (The Chinese University of Hong Kong).

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of …And Forgive Them Their Debts (2018), J is for Junk Economics (2017), Killing the Host (2015), The Bubble and Beyond (2012), America’s Protectionist Takeoff, 1818-1914 (2010), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), and Trade, Development and Foreign Debt (1992 & 2009), amongst many others. He acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.

De-Dollarization – Toward the End of the U.S. Monetary Hegemony?
Since the end of World War II, the United States has been the world’s hegemonic power. In economic, military, and cultural spheres, the U.S. has enjoyed nearly unrivaled supremacy. However, unlike past hegemons, which have been net creditors to the rest of the world, the United States is a net debtor; but this is a strength, not a weakness. U.S. debt is an integral feature of its economic dominance, through which the United States receives goods and services from the rest of the world in exchange for dollars it can print and keystroke into existence. Yet cracks are showing in the foundations of dollar hegemony, as countries look to find ways to escape from U.S. economic dominance. In this talk, Professor Hudson discussed the prospects and challenges of global de-dollarization, and how countries like China might forge a way toward a different monetary system free of U.S. control.

The Great Delusion: Liberal Dreams and International Realities | SOAS University of London

The Great Delusion: Liberal Dreams and International Realities was a talk given by Professor John J Mearsheimer at the Centre for International Studies and Diplomacy, SOAS University of London on 21 January 2019.  Find out more at http://bit.ly/2Dv5nlZ

It is widely believed in the West that the United States should spread liberal democracy across the world, foster an open international economy, and build institutions. This policy of remaking the world in America’s image is supposed to protect human rights, promote peace, and make the world safe for democracy. But this is not what has happened. Instead, the United States has ended up as a highly militarized state fighting wars that undermine peace, harm human rights, and threaten liberal values at home. Mearsheimer tells us why this has happened.

Speaker
John J. Mearsheimer is the R. Wendell Harrison Distinguished Service Professor of Political Science at the University of Chicago, where he has taught since 1982. He graduated from West Point in 1970 and then served five years as an officer in the U.S. Air Force. He then started graduate school in political science at Cornell University in 1975. He received his Ph.D. in 1980. He spent the 1979-1980 academic year as a research fellow at the Brookings Institution, and was a post-doctoral fellow at Harvard University’s Center for International Affairs from 1980 to 1982. During the 1998-1999 academic year, he was the Whitney H. Shepardson Fellow at the Council on Foreign Relations in New York.

Professor Mearsheimer has written extensively about security issues and international politics more generally. He has published six books: Conventional Deterrence (1983), which won the Edgar S. Furniss, Jr., Book Award; Liddell Hart and the Weight of History (1988); The Tragedy of Great Power Politics (2001, 2014), which won the Joseph Lepgold Book Prize and has been translated into eight different languages; The Israel Lobby and U.S. Foreign Policy (with Stephen M. Walt, 2007), which made the New York Times best seller list and has been translated into twenty-two different languages; Why Leaders Lie: The Truth about Lying in International Politics (2011), which has been translated into ten different languages; and The Great Delusion: Liberal Dreams and International Realities (2018).

He has also written many articles that have appeared in academic journals like International Security, and popular magazines like Foreign Affairs and the London Review of Books. Furthermore, he has written a number of op-ed pieces for the New York Times and the Los Angeles Times dealing with topics like Bosnia, nuclear proliferation, American policy towards India, the failure of Arab-Israeli peace efforts, the folly of invading Iraq, and the causes of the Ukrainian crisis.

Finally, Professor Mearsheimer has won a number of teaching awards. He received the Clark Award for Distinguished Teaching when he was a graduate student at Cornell in 1977, and he won the Quantrell Award for Distinguished Teaching at the University of Chicago in 1985. In addition, he was selected as a Phi Beta Kappa Visiting Scholar for the 1993-1994 academic year. In that capacity, he gave a series of talks at eight colleges and universities. In 2003, he was elected to the American Academy of Arts and Sciences.

Chair
This event will be chaired by Professor Arshin Adib-Moghaddam. Arshin Adib-Moghaddam is Professor in Global Thought and Comparative Philosophies at SOAS University of London and Fellow of Hughes Hall, University of Cambridge.

33:50
Madeleine Albright’s comments we are the
indispensable nation we have a right we
have the responsibility and now we have
the military power since we’re Godzilla
to turn the world into a different place
to remake it in America’s image think
about the concept of American
exceptionalism no American politician
can you know move one micrometer away
from American exceptionalism right you
know that Barack Obama who got
criticized on this issue was forced to
say that America is the indispensable
nation he used those words
it’s American exceptionalism we’re
different we’re better but that
nationalism juiced the liberalism the
nationalism coupled with the liberalism
coupled with the fact that we were so
powerful coupled with the fact that we
had this template in their head about
how we were going to make the world a
much better place
and we were off to the
races what’s the track record let’s talk
about the Bush Doctrine and the greater
Middle East the Ukraine crisis and
us-russia relations I’ve talked a bit
about that and then the failure of
engagement with China these are the
three most glaring examples of failure
the bush doctor the Bush Doctrine was
designed to turn the Middle East into a
sea of democracies in keeping with
liberal hegemony it’s very important to
understand that the war in Iraq 2003 was
not going to be in the minds of the
liberal hegemonist the last war in the
Middle East it was the first stop on the
train line
the second stop on the train line if you
want to include Afghanistan
we didn’t go
much further in terms of invading other
countries because Iraq turned into a
fiasco but the idea was that we could
use military force or the threat of
military force the threat of military
force to overthrow governments in the
region and install liberal democracies
in their place and therefore produce
peace in the Middle East that solved the
proliferation and terrorism problems I
know this sounds crazy now but this is
the way we were thinking you remember
Afghanistan is finally under American
control by December 2001 and then in
early 2002 the Americans are talking
about maybe invading Iraq the Israelis
catch wind of the fact that we’re going
to do Iraq and the Israelis send a
high-level delegation to Washington to
say why are you doing Iraq you should be
doing Iran
it’s the greater threat the
Americans say don’t worry Iraq is the
low-hanging fruit we’re gonna go in and
do a rack and then when we’re done with
Iraq will either do Syria or Iran next

but we won’t have to do one or two more
of these military invasions before
everybody in the region understands how
powerful we are and throws up their hand
and jumps on the american bandwagon
the
israelis foolishly believe the americans
thinking that we have found the magic
formula for winning wars and they then
begin to champion an invasion of iraq
right what’s the result total disaster
it’s truly amazing the amount of murder
and mayhem that the united states is
responsible for in the Middle East truly
amazing
virtually no successes and nothing but
failures and failures were huge numbers
of people died countries are physically
wrecked
Afghanistan now the longest war in
American history I know not a single
37:47
national security analyst who thinks
37:49
there’s any possibility we can win that
37:51
war and all we’re doing is checking
37:52
can down the road now so that Obama
37:55
doesn’t get blamed for losing
37:58
Afghanistan and now Trump doesn’t get
38:00
blamed for losing Afghanistan to Iraq we
38:03
wrecked that country Syria where the
38:06
United States displayed of a very
38:08
important role in trying to topple Assad
38:11
that’s hardly ever repeat reported in
38:14
the media that’s a total disaster the
38:17
amount of murder and mayhem we’ve
38:19
created in Syria no Libya we did a great
38:21
job there right with the help of the
38:23
Europeans my god right the Bush Doctrine
38:27
in the greater Middle East an abject
38:29
failure then there’s the Ukraine crisis
38:31
and us-russia relations I’ve talked a
38:34
little bit about this you know in the
38:35
West here in Europe and certainly in the
38:38
United States we blame the Russians for
38:40
the crisis well I don’t buy this
38:44
argument for one second from the time we
38:47
started talking about NATO expansion the
38:50
Russians made it very clear that it was
38:52
unacceptable to them they were too weak
38:55
to stop it in 1999 that’s when the first
38:58
tranche took place they were to stop too
39:01
weak to stop in 2004 which is when the
39:04
second tranche of expansion took place
39:06
but after 2008 when we were talking
39:09
about doing Georgia and talking about
39:11
doing Ukraine they said this is not
39:14
gonna happen
39:15
it was April 2008 at the bucura summit
39:19
the bucura Sneyd au summit April 2008
39:21
where when the meeting was over with the
39:24
declaration was issued by NATO that said
39:27
Georgia and Ukraine would become part of
39:30
NATO the Russians went ballistic it’s no
39:33
accident ladies and gentlemen that a
39:35
couple of months later in August 2008
39:38
you had a war over Georgia Georgia
39:40
Russia war August 2008 Bucharest summit
39:42
April 2008 and then on February 22nd
39:46
2014 you had a major crisis break out
39:49
over Ukraine the Russians had no
39:54
intention of letting either Georgia or
39:57
Ukraine become a Western bulwark on
40:00
their doorstep and the end result is
40:04
that neither one of those countries has
40:06
come Western bulwark and the Russians
40:09
are going to great lengths to wreck
40:10
those countries and the Russians are now
40:13
going to great lengths to split NATO
40:15
apart and split the EU apart so that
40:17
they can expand further eastward and
40:20
further where we have terrible relations
40:24

analysis was based on the idea that
57:28
there is a genuine effort in u.s.
57:31
foreign policy to export democracy and
57:36
some would say that you know this was
57:39
more like a Trojan horse to expand US
57:42
dominance or hegemony or however you
57:44
want to call it and that example such as
57:47
Pinochet in Latin
57:48
America or the Shah in Iran or or you
57:51
know us alliances with with autocracies
57:53
all over the world do not really
57:56
unprovided of evidence for a real
57:59
genuine effort to spread democracy in
58:02
the way it was done in in Europe with a
58:04
Marshall Plan that was really a genuine
58:06
effort to democratize absolutely agree

with you the European continent but with
the Iraq invasion in particular there
was no Marshall Plan there was no really
systemic structure competent effort to
create a democracy the only
administrator that was guarded after the
invasion was the oil ministry
and none
of the others so this is just a point
for my for my own understanding about
the trajectory of of you know what
happened to to the liberal United States
and we used to no good
these are two great issues and let me do
my best to answer them I take them in
reverse order first of all with regard
to what happened with the Shah would
happen with Pinochet Guatemala in 1954
and your comments on the Marshall Plan
remember my argument is that liberal
agenda only takes effect with the end of
the Cold War really about 1990
so I
would argue that the this is just
dovetails with what you said the United
States has a rich history of
overthrowing democratically elected
leaders right and furthermore preventing
the emergence of Democrats in other
cases and furthermore aligning itself
with murderous thugs and dictators
and
my argument would be then in a world of
realpolitik where security competition
is it play you’re going to see a lot of
that kind of behavior so I’m not
challenging that part of the story in
any way what I’m saying is that after
59:58
1990 Oh
but so recently up until Trump the
United States I believe was genuinely
committed to spreading democracy around
the world now a number of people
including some of my really good friends
make the argument that you make which is
dead even after 1990 this is a Trojan
horse their argument is John this is you
know the atavistic realist United States
taking advantage of the unipolar moment
to dominate the globe and then
disguising its aggressive behavior with
liberal rhetoric okay now uh I think
that’s wrong okay and I think whether
you’re you and my friends are right or
I’m right is largely an empirical
question it may be the case in thirty
years when they open the public records
there is an abundance of evidence that
supports your perspective which is that
we behaved in a very realist
we tried to become a global hegemon and
we successfully covered it up and we
bamboozled people like John okay that
that may happen I cannot deny that okay
but my argument to you and to my friends

is that I believe that’s wrong and I
61:23
believe that the people who are who have
61:29
been conducting American foreign policy
61:30
are not that clever they’re fools
61:32
they’re fools and they are remarkably
61:36
idealistic and I think there is an
61:39
abundance of evidence to support my
61:41
position right I can’t adduce it all
61:44
here or we can’t have a big debate about
61:45
it but I do think that’s true and the
61:48
reason I go to the case of NATO and I
61:50
say that NATO was not about containment
61:53
cuz I’m anticipating your question
61:56
necessarily from you maybe from somebody
61:59
in the audience
61:59
right and I’m trying to show you that
62:01
NATO expansion was not realpolitik at
62:04
work
62:05
it was liberal hegemony but again I
62:09
think I’m right in the terms of the
62:11
story that I’m telling you
62:12
but again this is an empirical question
62:14
and as you well know we want to be
62:16
humble in this business because we’re
62:18
sometimes proved wrong your question
62:21
about nationalism and liberalism I’m
62:23
gonna make two responses to that first
62:26
of all I do think one can make an
62:28
argument that liberal democracy is in
62:31
trouble in the United States with Donald
62:34
Trump as the president I think most
62:37
people believe that there is some chance
62:40
some reasonable chance he will get
62:42
reelected I think eight years with him
62:45
could do a great deal of damage to
62:47
liberal democracy but I would take it a
62:52
step further and say that Trump is a
62:54
manifestation of you know underlying
62:58
forces that are at play here that don’t
63:03
bode well for liberal democracy so I’m
63:05
not at all making light of what a
63:09
dangerous situation were in and of
63:11
course not only applies to the United
63:14
States as I told you folks in my talk if
63:17
you go look at Freedom House’s data
63:19
since 2006 the number of liberal
63:22
democracies in the world has been going
63:24
down now another fascinating issue you
63:28
raise is the whole question of the sort
63:36
of omnipresent state in the United
63:39
States right that doesn’t look like a
63:42
liberal state it looks like it’s
63:44
interfering in the management of almost
63:48
everyone’s daily life I don’t want to go
63:53
into this in any great detail but
63:54
basically when I talked about rights I
63:59
was talking about negative rights I was
64:02
talking about freedoms and the problem
64:05
is that in the modern world this is all
64:07
to be a good thing we’re not just
64:09
interested in negative rights were
64:10
interested in positive rights and the
64:14
best example of that is just think about
64:16
this the right to an equal opportunity
64:20
it’s not just the right to life liberty
64:22
and the pursuit of happiness we you’re
64:24
talking about freedoms those were
64:26
we’re talking about rights like the
64:28
right to health care the right to equal
64:33
opportunity those are called positive
64:35
rights and they’re very important in
64:38
every society today including the United
64:41
States and the point is once you start
64:44
talking about positive rights as well as
64:47
negative rights the state begins to get
64:50
involved in a really serious way and you
64:53
remember folks when I told you about the
64:55
three solutions that liberals have to
64:59
dealing with potential for violence
65:01
I said inalienable rights tolerance and
65:04
the state and remember that I said that
65:07
it’s very important to have a limited
65:09
state and the point that you’re making
65:11
is that we’re moving away from that
65:13
limited state and I think in modern
65:17
societies it’s very hard not to do that
65:22
I’m agreeing with you because of the end
65:24
is because of the emphasis on positive
65:26
rights and then when you start thinking
65:30
about things like artificial
65:31
intelligence the national security state
65:34
the ability of the state to intervene in
65:36
our daily lives you see that liberal
65:39
democracy is a fragile device that
65:44
really has to be protected so I’m
65:47
agreeing with you in very important ways
65:50
in terms of ever saying that was
65:53
essentially the point that we are all in
65:56
the same boat in many ways trying to
65:58
struggle to keep the rights alive when
66:00
trying to struggle to keep a democracy
66:03
alive here but questions from from the
66:07
audience and if I may I take two at a
66:10
time John is that okay it’s perfectly
66:12
fine I should have said at the beginning
66:13
by the way switch off your mobile phones
66:15
I mean Jeff reminded myself with a so –
66:19
two questions the lady with the colored
66:23
jumper yes I forgot to bring over a big
66:31
piece of paper
66:33
hello thank you very much for your talk
66:35
in your talk you mentioned international
66:37
institutions particularly the WTO and
66:40
the IMF as kind of instruments of
66:43
liberal hegemony I’m wondering what do
66:45
you see the future of those
66:47
international institutions now that
66:49
there’s a failure of in of liberal
66:52
hegemony thank you okay one more
66:54
question the gentleman in the back just
66:57
right at the back yes with the highest
66:59
hand ah yes that’s what the blue blue
67:01
sweatshirt hi thanks you said that
67:08
obviously liberal Germany is faltering
67:12
is it any more or less faltering than
67:17
autocracies such as China Russia Thank
67:21
You Jon first question had to do with
67:32
the future of international institutions
67:34
I believe that in a highly
67:40
interdependent world and we live in a
67:43
highly interdependent world a globalized
67:46
world a hyper globalized world cult
67:49
whatever you want international
67:52
institutions are absolutely essential
67:55
and that doesn’t mean that certain
67:59
international institutions won’t die but
68:02
if they do they’ll be replaced by new
68:04
international institutions there’s just
68:07
no way you can do business without
68:11
international institutions international
68:13
institutions is I learned a long time
68:15
ago when I wrote an article on this
68:17
subject are basically rules and you need
68:20
rules for all sorts of reasons when
68:23
you’re doing business and that business
68:25
can be economic it can be military I
68:28
mean if you have military alliance NATO
68:31
as an institution the Warsaw Pact as an
68:33
institution if you’re gonna fight the
68:35
Cold War all over again you’re going to
68:36
do it with a mill
68:37
Alliance which is an institution you
68:39
need the WTO although I think you need a
68:42
different variant of it you need the IMF
68:45
the World Bank the Chinese have created
68:48
the aii big institutions are here to
68:50
stay
68:51
Donald Trump can get rid of NAFTA but he
68:54
in effect just produced another
68:56
institution that looks like NAFTA so
68:59
institutions aren’t going away no
69:01
question in my mind on that the
69:05
gentleman up here asked me about whether
69:07
you know the Chinese political system
69:10
and the Russian political system were
69:12
also failing and maybe failing more so
69:15
than liberal democracy I don’t know what
69:19
the answer is to that at this point in
69:21
time I think that both the Chinese and
69:26
the Russians are doing reasonably well
69:28
at this point in time what the long-term
69:31
future of those political systems is
69:35
it’s hard to say so I’m just not too
69:41
sure I think in in both the Chinese in
69:45
the Russian case a lot depends on the
69:47
economy and I think a lot depends on how
69:53
much progress they make on the economic
69:57
front over the future but I think at
70:00
this point in time to some extent
70:02
everybody’s in trouble okay two more
70:05
questions
70:06
the lady in the back all the way
70:16
my question is about based on the
70:20
relationship between China and United
70:22
States do you think we are entering oh
70:26
we are already living you know in new
70:29
Cold War era and secondly do you think
70:34
that sports country US and China will
70:37
end up in Susa dated Trump’s will end up
70:41
way so City Detra okay second question
70:52
yes the gentleman right here would you
70:57
wait for the microphone it’s right that
71:02
it’s in the front yeah thank you
71:04
it’s okay sorry to make you run hi John
71:09
thank you for your talk much of the US
71:12
political discourse lately around Trump
71:15
seems to be focused apart from the
71:17
collusion with Russia seems to be on the
71:20
lack of coherence of foreign policy and
71:23
I think looking at some of trumps
71:26
rhetoric in recent years it seems to
71:29
align a lot with the core tenets of your
71:31
book tragedy of great power politics and
71:33
in particular we see Trump adopting an
71:35
offensive realist position towards China
71:37
we see him somewhat buck-passing Syria
71:40
to Russia and we see a kind of offshore
71:42
balancing with regards to NATO in Europe
71:45
so my question is to what extent do you
71:48
think that Trump is a meerschaum
71:50
heurists
71:50
so to speak truth
71:51
[Music]
71:54
okay John okay I’ll take the first
72:01
question on China and the United States
72:04
and the young woman in the back asked me
72:07
if I thought there was a new Cold War in
72:10
store between those two countries I
72:13
think the answer is yes my basic view of
72:18
international politics is that the great
72:20
powers in an ideal world want to
72:23
dominate their region of the world and
72:26
they want to do like the United States
72:29
did in the Western Hemisphere they want
72:30
to be the only great power and they
72:34
don’t want any other distant great
72:36
powers coming into their backyard and if
72:40
you look at China today China’s growing
72:44
economically and militarily and I think
72:49
that the Chinese are very interested as
72:51
they should be in dominating Asia and
72:55
that means not only being the most
72:58
powerful country in the region but also
73:01
making sure the Americans are pushed out
73:04
the Americans well the Chinese talk
73:11
constantly these days about the century
73:14
of national humiliation which ran from
73:17
the late 1840s until the late 1940s the
73:21
Chinese were weak over that hundred year
73:24
period and they were exploited by the
73:28
Japanese the Americans and the European
73:30
great powers they have never forgotten
73:32
that
73:32
and their goal is to make sure they are
73:35
really powerful in the future if you
73:38
were to go up to a Jap to a Chinese
73:40
policymaker or remember the Chinese
73:43
foreign policy League and say to that
73:45
person you have two choices you can be
73:48
twenty times more powerful than Japan or
73:51
Japan can be 20 more times powerful than
73:54
you do you think it makes any difference
73:56
they would laugh in your face they would
73:59
tell you we know what happened the last
74:00
time Japan was 20
74:02
more times powerful than us we intend to
74:04
be 20 times more powerful than Japan in
74:07
the future and then when you ask the
74:09
Chinese behind closed doors what they
74:11
think about the Americans running ships
74:13
and aircraft up their coast and having
74:16
ground forces off their coasts and
74:18
places like Korea and Japan they will
74:21
tell you in no uncertain terms if they
74:24
get powerful enough they will try to
74:25
push us out beyond us meaning the
74:27
Americans beyond the first island chain
74:29
and then beyond the second island chain
74:32
and if you look at how they think about
74:33
the waters around them they’ve made it
74:35
very clear that they think the South
74:37
China Sea belongs to them and we’ve made
74:40
it clear to them we don’t agree with
74:42
that they’ve made it clear they think
74:44
the East China Sea belongs to them and
74:47
there’s a real possibility they’ll get
74:49
into a fight with the Japanese over
74:51
those small islands in the East China
74:53
Sea
74:53
then there’s Taiwan which is a potential
74:56
flashpoint of great significance China
74:59
is not a status quo power so the Chinese
75:03
as they get more and more powerful are
75:06
going to try and become more and more
75:09
influential in East Asia and they’re
75:12
going to try and push the Americans out
75:13
and you know what the Americans are
75:15
going to do the Americans are going to
75:16
pivot to Asia and they’re going to try
75:18
and contain the Chinese and they’re
75:20
going to push back so I would argue that
75:24
there is likely to be trouble ahead and
75:29
put it in your terms you are likely to
75:31
get a new Cold War in Asia second
75:38
question had to do with Trump and he
75:43
accused me of being in bed with Donald
75:46
Trump intellectually this is a
75:49
frightening thought
75:54
yes right that’s right then we know
75:58
there is no connection look to be
76:03
serious I think that I think that Donald
76:06
Trump has no coherent foreign policy I
76:10
think he flies by the seat of his pants
76:12
and he has certain intuitions and I do
76:18
think apropos your question that some of
76:21
those intuitions are consistent with a
76:23
realist perspective in other words when
76:26
Trump says that he is not interested in
76:30
using military force to spread democracy
76:33
around the planet that’s an argument
76:35
that resonates with realists there’s
76:38
just no question about it now another
76:41
example that you used was containment of
76:44
China right that of course resonates
76:47
with realist logic but also you want to
76:50
remember that the person who articulated
76:52
the pivot to Asia was Hillary Clinton
76:54
and the Obama administration the Clinton
76:56
administration was also interested in
76:58
the pivot to Asia so this is not
77:00
something new to trump but it gets
77:03
consistent both with the Democrats and
77:05
with Trump with basic realist logic my
77:08
problem with Trump is that he’s done a
77:10
half-baked job of pivoting and dealing
77:14
with our Asian allies Trump’s big
77:16
problem and this is where you know he
77:18
parts for realism his realist believed
77:21
that alliances matter allies matter and
77:24
if you’re gonna deal with an adversary
77:28
like China right you need help from
77:31
countries in East Asia and you don’t
77:34
want to be slapping him around which is
77:36
what he does I also think the TPP the
77:39
trans-pacific partnership which was an
77:41
economic institution that was designed
77:44
to contain China right it was designed
77:48
for economic purposes but also for
77:49
security purposes he vetoed that or he
77:53
killed that when he came
77:54
to office that was a big mistake so I
77:58
think a lot of what he has done is
78:00
inconsistent with a realist approach but
78:03
there is no question that he does have
78:04
realist tendencies although again it’s
78:07
not part of any sort of grand theory of
78:11
how the world works okay last round of
78:14
questions
78:16
the gentleman white sweatshirt thank you
78:24
so much for your talk it’s very
78:26
enlightening I just have a question with
78:30
regards to the Iraq invasion
78:33
so you said and I quote there are
78:36
virtually no successes in Iraq and I
78:39
personally think that there were some
78:40
successes for the United States let’s
78:44
put aside all of the inexplicable damage
78:46
that has been wrought on to the Iraqi
78:49
population I think that there were
78:53
benefits for it for its economic
78:56
interests in the long term we can see
78:59
today that although what was done in
79:01
Iraq was a failure in many ways many oil
79:05
contracts if not all were given to
79:08
American country companies like
79:10
ExxonMobil war was created which
79:14
increases the demand for for weapons
79:17
which in turn can increase manufacturing
79:20
and selling of weapons by American
79:23
companies although all these contributes
79:27
to the economic superiority of the
79:29
United States and its prominent
79:31
companies so we need a question I will
79:34
come to the question because we’re
79:35
running out of time all right I
79:37
apologize for that so we can’t imagine
79:40
the United States today without its
79:42
superior economy right so I ask can the
79:49
Iraqi invasion be seen as a commercial
79:51
success for the United States
79:53
thank you very much the second question
80:05
hi thank you very much for your talk
80:08
my question is regarding the European
80:10
Union as America focuses on itself more
80:13
and liberalism takes a backseat do you
80:16
think there is a future for the European
80:18
Union and what do you think the future
80:19
holds for Western Europe thank you I
80:29
should go okay thank you
80:31
with regard to your question about Iraq
80:33
I thought you were gonna argue that it
80:36
had some benefits for Iraq but obviously
80:39
you’re arguing that it had benefits to
80:41
the United States economic benefits for
80:43
the United States I don’t believe that
80:46
I think it’s estimated that the two wars
80:53
won in Afghanistan and two in Iraq and
80:56
the Iraqi war is the more expensive the
80:58
two of the two is gonna cost us
81:00
somewhere between four to six trillion
81:03
dollars over time again when you think
81:08
of all that money and and and and the
81:11
consequences for the Iraqi people it’s
81:14
just stunning right but for the six
81:16
trillion dollars I don’t think the oil
81:19
companies ended up making much of profit
81:24
as a result of the invasion and I think
81:28
in terms of arms sales yes we sold some
81:31
more arms but not enough to really
81:34
matter not enough to really affect the
81:36
economy so I don’t think I don’t think
81:42
that you’re right that the the United
81:44
States benefited economically from this
81:47
war but again even if it did it wouldn’t
81:49
justify you know what happened in Iraq
81:53
and by the way remember that one of the
81:55
principal consequences of the invasion
81:58
of Iraq was the creation of Isis just
82:01
don’t want to lose sight of that
82:04
second question a very interesting
82:06
question on the EU and the future of the
82:08
European Union and you prefaced it by
82:11
saying America’s losing interest in
82:15
Europe to some extent and as American
82:18
interest in Europe wanes what does that
82:21
mean for the EU I make two points first
82:26
of all I believe that one of the reasons
82:29
probably the main reason that European
82:32
integration has been so successful and
82:35
there has been peace in Europe is
82:37
because of the presence of the American
82:40
military in Europe its NATO it’s the
82:45
American pacifier as I often say to
82:48
audiences you know I’ve spent a lot of
82:50
time going around Europe since 1990 when
82:52
the Cold War ended I have never met a
82:56
single policymaker a single pundit a
82:59
single academic a single representative
83:03
of the foreign policy establishment in
83:05
any country in Europe who wants to see
83:07
the Americans leave Europe this is quite
83:09
remarkable and now I was recently
83:12
Romania as recently in Denmark the
83:15
Romanians and the den Danes do not want
83:18
us to leave Europe and it’s because they
83:20
understand that this I’m throw but the
83:23
American military presence that NATO
83:25
underpins the EU and peace and security
83:29
in Europe okay that’s my view so in
83:33
terms of the future of the EU what
83:37
really matters in terms of the United
83:39
States is that we stay in NATO keep NATO
83:43
intact and keep American forces here the
83:47
second point I would make to you the
83:49
problems in the EU today despite all
83:52
Donald Trump’s rhetoric have nothing to
83:55
do with the United States they’re mainly
83:59
Eurocentric problems problems associated
84:02
with the euro problems associated with
84:05
brexit if you look at what’s going on in
84:07
Italy and a lot of these problems by the
84:10
way have to do
84:10
with nationalism right I’m not going to
84:12
get into that in any detail here but
84:14
there are real problems in the EU today
84:17
but those problems are not the result of
84:21
the United States right so the Europeans
84:24
have to figure out how to fix those
84:25
problems but more importantly for the
84:28
Europeans they got to keep the Americans
84:30
here in my opinion I think the America
84:33
the European elites understand correctly
84:35
that an American military presence is a
84:38
pacifying factor here in Europe the main
84:43
pacifying factor thank you very much
84:46
John unfortunately we have to leave it
84:48
at that there will be a drinks reception
84:51
outside in the foyer but join me once
84:54
again to in thanking professor much I’m
84:58
afraid
84:58
excellent
85:00
[Applause]
85:05
you
85:06
[Applause]

Why Are Elizabeth Warren and Donald Trump Trying to Weaken the Dollar?

A strong dollar makes America strong. Any campaign to devalue it is likely to backfire.

Elizabeth Warren’s “economic patriotism” differs in style and content from Donald Trump’s economic nationalism, but they have found common cause in vows to weaken the dollar. That is a strangely self-defeating agenda for patriots or nationalists of any political fashion.

Mr. Trump and Ms. Warren argue that China and other emerging rivals weaken their currencies to promote exports and gain jobs, so why shouldn’t America follow a similar policy? Here’s why: Because America is not an emerging country. It’s an unrivaled financial superpower, a position built in large part on hard-won trust in the dollar, which is an enduring source of American power and prosperity.

When the dollar strengthens and weakens in response to buying and selling in the global currency markets, foreign countries don’t protest. Occasionally they have cooperated with the United States to stabilize the dollar. But nothing will destroy trust in American financial leadership, and the benefits that go with it, more surely than for the United States government to start unilaterally manipulating the dollar for its own competitive advantage.

If Vietnam or South Korea manipulate their currencies in a bid to improve their exports, a few of their trade partners may retaliate; if the financial superpower plays the same game, the whole world will respondbecause the dollar is the international standard. A record high 60 percent of countries now measure, or “anchor,” the value of their own currencies against the dollar. Any campaign to devalue the world’s anchor could set off a destructive wave of competitive devaluations.

After World War I, when America challenged Britain as the leading global empire, the dollar began gaining on sterling as the currency that most central banks preferred to hold in reserve. Reserve currency status had long been a perk of imperial might — and an economic elixir. By generating a steady flow of customers who want to hold the currency, often in the form of government bonds, it allows the privileged country to borrow cheaply abroad and fund a lifestyle well beyond its means.

Other countries watched the United States assume this role with dismay. In the 1960s, Valéry Giscard d’Estaing, then finance minister and later president of France, called the dollar’s powerful status America’s “exorbitant privilege.” And for nearly a century now this privilege has helped to keep United States interest rates low, making it possible for Americans to buy cars and homes and, in recent decades, run large government deficits that they could not otherwise afford.