Obama to Abandon the Dollar?
August 5, 2009 by Brien Lundin
There is a growing movement in the international community for a new reserve currency system that would greatly diminish the role of the U.S. dollar.
China and Russia have been the loudest and most insistent anti-dollar agitators so far, but they’ve recently been joined by the rest of the “BRIC” gang (India and Brazil), while France and other European nations have also begun carping about the dollar’s dominance.
While acknowledging that such chatter can be bearish for the dollar (and therefore bullish for gold), I’ve dismissed the likelihood that the dollar will ever be deposed as the king of fiat currencies.
Now I’m not so sure. You see, there are many advantages that come along with having your national currency serve as the international medium of exchange. Primary among these is the ability to export many of your economic problems to other regimes. So it’s a good and desirable position to be in.
For this reason, throughout human history, the role of international reserve currency has naturally devolved to the dominant military power of the age.
During the Roman Empire, the visage of Julius Caesar could be found on coins circulated throughout the Western world. When England ruled the seas during the Victorian era, the pound was the standard-bearer for all the world’s currencies.
And after America grew to become the world’s most powerful nation in both military and economic terms in the first half of the 20th Century, the U.S. dollar became the top dog among the world’s fiat currencies.
It wasn’t easy to attain this lofty status. The price was dear in terms of treasure and blood. But at this point, with no other military superpower extant, it’s not that difficult of a position to maintain. All that’s needed is to maintain the current level of military might and reasonable economic growth.
In other words, given our current status, it would be very difficult to lose our role as the world’s economic bell cow. If it were to happen, history would judge the event as one of the greatest economic and political failures since the dawn of human civilization.
Frankly, the only way this could happen would be if we allowed it to happen. Which is why I’m worried now.
When you consider that President Barack Obama has traveled to Russia with an armful of concessions, eager to negotiate on equal terms with this second-tier nation, then you begin to think that perhaps he doesn’t understand America’s position in the world.
When you consider that he has already toured Europe’s capitals apologizing for our previous arrogance—and is pushing through “green” legislation that will unfairly burden our economy for no real gain in global carbon emissions and is generally trying his best to make sure our overseas friends and enemies like us—then you begin to wonder if Obama really wants America to keep its mantle of leadership.
Given all this, it seems at least plausible to me that, if presented with some new global reserve scheme with roles for the world’s major trading currencies, that the Obama administration might acquiesce in the interests of “fairness” or “justice.”
Remember, Secretary Timothy Geithner has already been guilty of a slip of the tongue along these lines.
Such a development would be an absolute travesty—a complete abandonment of duty to America’s best interests. And I’d have to judge it, still, as being highly improbable.
But it is more possible now than at any time since the dollar first achieved its lofty status as the king of fiat currencies. And that should worry us greatly.