Is the US dollar losing the trust required of a global reserve currency?
The dollar isn't just America's currency. It is the plumbing of global trade—the world's settlement mechanism, safe haven, and store of value. But Trump's tariff agenda, political interference in the Federal Reserve, and broader institutional instability are changing how the rest of the world assesses US credibility.
This video explains:
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Why reserve currencies depend on trust, not “strength”
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Why the US deficit is not an accident but a structural feature of the system
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Why one-currency global trade has become fragile
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What Keynes proposed instead: the bancor
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Why the BRICS alternatives don't solve the core design problem
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Why the IMF / World Bank have failed to lead reform
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Why we now need a neutral clearing system for global trade
The question is not “does the dollar collapse tomorrow?”
It's whether the world should keep accepting a reserve system built around one national currency—and one increasingly erratic politics.
This is the audio version:
This is the transcript:
Is the dollar failing? The US dollar is the world's reserve currency. It has been since the end of the Second World War. It's fundamental to the way in which the world economy works as a consequence, but let's be honest, we know that the dollar is at risk.
Donald Trump's tariff policy has created risk about the status of trade with the USA.
His attack on the US Federal Reserve, right or wrong - it makes no difference - is creating uncertainty about the management of the dollar and, as a consequence, there is a sense of uncertainty around the world about what might happen if the dollar fails.
The question comes up: what could we do instead? And in that context, it's important to recall that just after the end of the Second World War, John Maynard Keynes, Lord Keynes, as he was by then, proposed something instead as the world's reserve currency. He proposed something he called the bancor, it's spelt B-A-N-C-O-R, and that was going to be the thing that would deliver, in his opinion, stability in world trade. Has the time now come when we need to look at the bancor again?
The dollar, let's remember, is more than a currency. It is the plumbing of global trade. It is the global store of value, and it has been how crises are managed. " In doubt? Buy the dollar." Was the mantra, and it worked, but now confidence in the dollar is being shaken, and for good reason: Donald Trump is doing that deliberately.
But let's also be clear, there isn't going to be a collapse in the US dollar tomorrow. That's just not going to happen. People still need the dollar. They're still going to buy the dollar. They've still got debts denominated in dollars, and the dollar does provide the world with its liquidity.
So, the question we're talking about here is not about an immediate crisis because I can't see that happening. Even if the Federal Reserve does lose its battle with the US government, I don't think everything is going to tip over tomorrow. Instead, what we're talking about is an issue of long-term trust, and trust in US institutions is falling, for very obvious reasons.
They're being badly managed, their governance is failing, and Trump is trying to undermine the whole credibility of the US government, and there is real doubt about whether any future president will be able to restore that, and Trump most definitely won't be able to do so.
In that case, trust is the key word here because trust is what a reserve currency requires, and trust in the dollar is falling. But the world does still need a reserve currency. It does need the liquidity that, at present, the dollar provides, and which the US literally creates by running perpetual deficits, which supply the world with the money supply that it needs.
To pretend that the US deficit is some form of accident is, in this case, nonsense. The US has to run a deficit, or the world comes to a halt right now, and that is what has created global dependency on the USA and, simultaneously, political resentment, both inside and outside the US. It is this that has helped create the instability within US politics, which is now giving rise to the policy shifts which lead to the question: Is the dollar going to lose its dominance?
My point is already clear: no, not overnight. But, and this is key, the question mark is there. Whilst the IMF is showing that the dominance is being maintained at present, its statistics clearly indicate that there is no short-term threat to dollar hegemony, the fact is that diversification is happening at the margins.
The key issue isn't collapse then, it's the fragility that is now built into a one-currency world system of trade when the currency is created by a country that is clearly indicated it doesn't believe in trade anymore, and that's why we need to go back to Keynes.
That's why we need to look at what he suggested as the alternative to the dollar way back in the middle of the Second World War, in the negotiations that ended when the Bretton Woods agreement was concluded about how the architecture of the world's financial systems would be created post the end of the conflict in 1945.
Keynes thought that global trade needed a global mechanism, and it did not, in his opinion, require dependence on one national currency. He lost that argument, but he put forward the claim that we should not have the dollar; we should have what he called the bancor.
Now, the bancor was not a currency in the way that you are used to it. In fact, it would never have been issued for use by anyone in any country. It was only going to be a currency for use for the settlement of international debts. It was a clearing mechanism, and this is something that we should be used to if we have familiarity with money now. What he was creating was a form of central bank-created money.
We do have central bank-created money in every currency around the world right now. It's the money that the Bank of England creates for the clearing banks in the UK, which is distinct and different from the money that they create for use by us, their customers. And he was creating a central bank currency for use so that countries could pay each other through a central bank clearing system. Now, that makes it harder to understand than a normal currency because we would never see the bancor in use, but it is a system for settlement and not a gimmick, and that is critical.
What Keynes saw was that there were persistent surpluses being run by some countries in the world and persistent deficits by others. Now, which countries have run surpluses and which have run deficits have changed since then, but the point is that they create pressure both ways. There is an inherent instability in a world system where some countries always run deficits, and some always run surpluses, because resentment can arise, and the bancor was designed to create pressure on both sides of this equation to try to create a balanced system of world trade.
The goal was fairness and stability without necessarily requiring unity of systems at all times, and most definitely not necessarily balance in the short term.
But there was a problem. Keynes was negotiating in 1945 from a position of weakness. Britain might have been very early into the war, but as a consequence, it was, of course, heavily indebted by the time the war was over, and the US held the power. It had the dollar, and it had gold. 75% of all gold reserves, in fact, in the world at that time, and the US preferred a dollar-centred system, and so Keynes's argument for bancor were lost. The US person present at the negotiations, Harry White, won; the dollar became the system that we now use. But the point is, it was a choice, and that's incredibly important to note. This happened because of a choice; the dollar could be replaced by choice as well, that's why I make this point.
Now, the dollar was reinforced in its position because once the Bretton Woods logic was put into action, the International Monetary Fund and the World Bank reinforced the dollar's hegemony. They reinforced the idea that the dollar was anchored to gold. They encouraged the idea up until the early 1970s that other currencies were pegged by exchange rate to the dollar, and they created what, therefore, looked like a stable currency system for the world. And it was, until it wasn't, and it wasn't from 1971 onwards.
Global trade grew faster than gold supply did. That therefore created credit crises within this system, and US deficits mounted.
The credibility of the gold link within that currency was eroded as a consequence, and in 1971, when the French did, in effect, say to Richard Nixon as president of the USA, that they wanted their gold back from the US, he changed the world order by saying, "The US dollar was now no longer linked to gold," and that was the end of the matter, France couldn't have its gold. Convertibility was no longer possible, but dollar dominance remained, but now in an unmanaged state.
The system that existed from 1946 to 1971 was over, and now the situation moved into a new era. Trade imbalances became structural. Exporters began to hoard foreign currency reserves. Deficit countries were forced to deflate demand within their countries to try to manage the deficits that they were running and the floating exchange rates that they were managing, and global growth became dependent, fundamentally, on US consumers continuing to literally live beyond their means because as a consequence, they created the deficits, which kept the world's liquidity going.
This was all an economic design flaw. It wasn't chosen. It happened, and in a sense, it was a mistake, and now we can see the consequence. Global instability is intensifying. US politics are becoming increasingly erratic. Monetary policy independence is being contested, and to an extent, rightly so, and markets are noticing safe haven behaviour is developing: the price of gold and silver is rising. This is exactly what reserve systems cannot tolerate, and we are in a situation where the pressure on reserve systems is reaching breaking point.
So what we have to say is, what do we do next? Now, one of the answers has been put forward by what are called the BRICS countries. They are Brazil, Russia, India, and China. They say they'd create their own reserve currency to trade in and ignore the dollar, and I get the point that they're making. They don't want to be dependent upon the dollar, and why should anyone else? But the difficulty is, at present, they can't provide the deep capital markets that a reserve currency requires. Nor in all cases are they completely committed to the rule of law, and they need to be if they're going to truly provide a reserve currency, and they don't have scalability or reliability or, at present, credibility with regard to governance. As a result, whilst the BRICS currency idea is a good one, it isn't a solution. What we need is a world institution to manage a new reserve currency.
Could that be the bancor? My suggestion is that it could. The precise benefit of this is that it is a neutral clearing unit and is not nationally based. It would be issued by an international institution, although this, I would suggest, would require that the World Bank or IMF, or some other organisation, to create it would have to move out of the US, and not be dependent upon US power, and it must be then used for the settlement of balances. It could be linked to a basket of other currencies or commodities, and also, interestingly, the value could be linked to carbon constraints. In other words, there could be an opportunity to link the value of a country's contribution to this basket of currencies, depending on its commitment to tackling the climate crisis that we have.
All of this makes it a policy instrument as well as a reserve currency, and this is important because Keynes did not have to consider such issues in 1946, but I suspect that if he had been alive today, he would have done. Today, we do face climate breakdown. We do face resource limits. We do face fragile supply chains, and we do face financialised speculation in a way that Keynes quite clearly condemned. So any new system of reserve currency has to be able to manage all those issues whilst providing a mechanism for exchange and clearance for world trade. This is the challenge that we face.
But, we also have to face another challenge, and that is, why, at this moment, when we so obviously need something better than the dollar, is no one talking about what I've just been talking about, the need for a new reserve currency?
Are the IMF and World Bank not talking about this?
Why are they locked into orthodoxy?
Why are they defending the existing order when it is clearly failing?
Why aren't they disciplining countries that clearly need to be brought into line in the world's international trading system?
And why aren't they also disciplining surplus countries, who should, in fact, be spending those surpluses into use because they are creating instability as much as any country that is running a deficit? After all, every deficit requires there to be a surplus. This is double-entry bookkeeping at work.
Why is all of that not happening? Because they're avoiding political confrontation with the USA. That's why I say these institutions have to move out of the USA, because if the USA is creating this problem, the world has to be able to challenge the US, or the problems can't be solved. We will be dragged down by the USA if we don't say what it is doing is wrong.
We also need, therefore, to look at the location where any such currency could be based, and the obvious answer right now is either within an EU country or at least within a G7 country. Canada may be uncomfortably close to the USA, but we don't necessarily require it to be in Europe either. The point is, we do need a place where there is stability, and that requires a country to be willing to stand up and say it will host this new settlement system that will not be dependent upon its currency, but to which it will lend the credibility of its systems, its system of law, and its ability to maintain good governance. That's because we need to have stability, and that's precisely because instability costs everyone a great deal.
Europe does need this, and if it isn't going to speak out for it and even ask to create this system, then its apparent neutrality is in fact its complicity in chaos.
So we need to look at this. This is a question that cannot be avoided now. At some time, this problem is going to get worse than it is already.
We're going to see more currency volatility.
We're going to see bigger financial shocks transmitted globally.
We're going to see more destabilising capital flows than we are already getting now, and they are becoming worse.
We're going to see more austerity in vulnerable countries as a consequence of those flows.
And we're going to see more global resentment and fragmentation, and that is a price that we cannot afford to pay.
So Keynes offered us a system designed for stability. The dollar system is not designed for that, and it is clearly showing now. In a world of instability, we need to look at alternatives. This, then, is the moment to reopen discussion on bancor. Why aren't we doing it is the question we have to ask, when stability is a public good, reserve currencies are political choices, global money design affects real lives, and a fair system requires care, investment, and support for its survival? It's time to demand debate. It's time for change. It's time for the world to wake up and realise the day of the dollar is over.
What do you think? There's a poll down below.
Poll
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If Keynes couldn’t get agreement on Bancor in 1945 with only the UK and the US as the serious (monetary) players at the time, there is no chance in today’s multipolar world. The SDR exists and could play the role that you suggest for Bancor…. but nobody is (or will) pick it up.
So, I voted for “fragmentation and instability”.
For me, the question is how do we respond in this fragmented world and either prevent instability or, at least, be prepared for it.
(If I have time I might make some suggestions about this later).
Please do.
Sorry for sending 3 rather disorganised lengthy posts. If I had more time it would be shorter.
The key point is…People don’t choose to hold a particular currency because it is a “Reserve Currency”, a currency becomes a “Reserve Currency” because people (in particular, Central Banks) choose to hold it.
Choices can change, so the questions are – will they and, if they do, what are the consequences?
Personally, I see no chance of multilateral agreement to adopt Bancor (or similar) but this is not a prerequisite for the dollars status to diminish. There are few barriers to operating in a multi-currency world where people can choose to transact and store money in many currencies – it does not need anything new, nor central agreement/organisation. Just individual countries and investors voting with their feet…. and they already are in many cases.
If willingness to hold dollars declines it has severe implications for US interest rates, inflation etc. which will reverberate around the world. There is nothing we can do about it but remember- if you are going to panic be the first. So, sell dollars now!
2)
In a bit more detail…
First, we should not expect Official Institutions to lead the charge out of the dollar – a shift in official reserve policy will become public knowledge with, perhaps significant diplomatic fallout. However, we can expect them to “follow the lead”… but sometime after the private sector has made the move.
Second, official FX reserve balances of a particular country reflect the size of the surplus plus the willingness/ability of private players to hold dollars. Holdings of dollars among foreigners must rise by $1trn a year – that is the annual trade deficit. These surpluses/deficits are driven by real companies trading in real goods and services that are not generally FX risk takers. If a Chinese company invoices in USD it will sell those USD and they will eventually end up in Chinese Central Bank FX Reserves (unless other private investors choose to hold more dollars). So, foreigners will accumulate more dollars… but which foreigners (Central Banks or private savers) is not clear…. and that matters as they will tend to behave differently.
Private sector global investors hate the dollar…. but fear stops them selling. Many are “global index investors” so selling dollars is a risk. Many suffer FOMO; some with regard to the Magnificent 7 companies and their global domination, others, the AI story.
Central Bank holders of dollars are fearful of selling – they don’t want to damage the value of the holdings they don’t sell by selling part of their position. “Too big to sell”. They also don’t want their currencies to appreciate too much or an argument with the largest military power on earth.
So, it appears that we could just keep on going as foreign Central banks think that accumulating more and more dollars is the safest course…. but all it takes for the dollar to fall is a decision to stop accumulating more and in my view that depends on disillusionment with AI/Tech hype. That will drive foreigners to sell and at that point the snowball starts rolling and will be unstoppable.
3)
And some history…
Back in 1990 total FX reserves (excluding the US) was about $1trn, today it’s about $12trn. Sovereign Wealth funds (SWFs) have also ballooned to about $12trn, too (from less than $1trn in 1990).
FX reserves are about 60% dollars and rough estimates suggest SWF assets are in excess of 60% in USD… or a total of about $15trn.
So, what are FX reserves for? What is the difference between FX reserves and SWF assets?
Originally, FX reserves were held as insurance that would allow a country to purchase essential imports in the face of a crisis. They must be easily convertible into what a country needs…. and, since all FX trading pairs are against the USD and Oil (and other stuff) is priced in dollars, FX Reserves were (are) largely held in dollars. I would suggest that the entire UK FX reserve portfolio of US Treasuries could be liquidated in an afternoon without any market disruption and the cash deployed to buy GBP immediately. That is the “practical” element to why reserves are held in USD.
More strategically the US (after 1945) and UK (before 1914) favoured free trade, the rule of (their) law and backed it with economic strength, gold and (most importantly) military might. No surprise that first GBP then USD were the major reserve currencies of the last 200 years.
This made perfect sense in the FX regimes that prevailed until the 1970s. But in a floating FX rate world that is less the case. The BoE last intervened in 1992 and it wasn’t a great success! (Japan is the exception having sold dollars in 2024 as the yen depreciated but in small size compared to its holdings).
It still makes sense to hold USD (in US Treasuries) “just in case” – but $15trn? No, beyond a certain level concerns over safety/liquidity give way to the search for better returns.
Hence the rise of the SWF – typically, oil revenues that are saved for future generations when the oil runs out. Even countries that don’t explicitly run a SWF (and with growing reserves) has moved away from just short maturity US Treasuries – to other currencies, longer bonds and non-government bonds. (Pseudo-SWFs, really).
So, when we look at “FX Reserves” we need to remember that most are not actually “Reserves” but “Investments”…. and those will be more mobile.
Thanks, Clive.
Might you add part 4? That’s the risk analysis?
You did ask!! Risks
Foreigners in aggregate, can’t reduce dollar holdings unless the US runs a trade surplus. The trade deficit is $1trn per annum and the last surplus was in 1975 so, even if this turns sharply, trade won’t help. Foreigners will play “pass the parcel” until the dollars reside with players that are content to keep them. This will certainly lead to “overshoot” and great volatility but what might make someone keep them?
1. Lower dollar. At some point, people will see “value”.
2. Higher US interest rates. Higher rates relative to other countries will compensate against the risks of further dollar depreciation.
3. Compulsion. The US could “encourage” or even “force” foreigners to hold dollars.
In theory, the Fed could raise rates far enough to protect the dollar; in practice, they won’t. Other countries might consider FX rates when setting domestic monetary conditions but the US never has. The Fed will only raise rates in response to domestic price pressures – which may come from a lower dollar but not immediately. More likely, we see a bigger move in FX rates – EURUSD was 1.60 and GBPUSD 1.80 in 2008 – we would go there or higher.
Whilst the Fed might not hike short term rates, liquidation on longer maturity bonds by foreigners would raise long term rates (on which mortgages are based) and push the US into recession or worse.
[Of course, MMT says the Fed could intervene and keep long rates low but this would merely encourage foreigners to “sell while the bid lasts” and that would push the dollar even lower. (I think this dynamic interaction between control across the yield curve that MMT allows and FX rates is potentially very dangerous and is, ultimately, why capital controls have to be part of the policy tool kit.).]
Recession would certainly be exported to the rest of the world – particularly the big exporting countries of East Asia.
This is all “standard stuff”…. potentially grim for the global economy but it is the “compulsion” risk that is most interesting. Could the US introduce capital controls? Selectively default on US Treasuries? I don’t know but what we do know is that economic turmoil delivers political turmoil.
One can protect one’s savings against “Standard Risks” (Sell all US assets, buy local government bonds). But there is no protection against revolution or war.
Thanks
And all noted.
And I think you are right. Especially the last sentence.
One other question in the current Perma Crisis is what about US Bonds?
Will people want to continue to hold them or if Trump does something even sillier than he has so far will we potentially see a sell off?
If then what are the consequences?
The sell off forces US interest rates up. That’s the issue. Trump wold get the opposte of the outcome he wants.
It is American military hegemony that underpins dollar hegemony and even without Trump, the U.S. would aggressively preserve that with menaces. The dollars reserve currency status helps to prop up the huge investment in the military by the U.S. for one thing. Although I like the cut of your jib, I think that the U.S. would preserve that status at all costs no matter who was the president. We have enough on with domestic issues as well.
Thank you for another inspiring video.
As usual I have several questions 🙂
1. Is the internet alleged move of the Bank of China into holding more gold reserves a move towards replacing the dollar? And do people think China would be more supportive of a Bancor than the US was?
2. Would a central clearing bank that penalised surpluses in the way that Keynes suggested automatically deal with unfair ‘third world’ debt? Without having to have the argument about ‘moral hazard’ from ‘debt cancellation’?
3. I remember getting the impression from Benn Steil’s ‘Battle of Bretton Woods’ that Keynes did not want to give up the Sterling currency area in the British Empire and that the US objected to this and that this was part of their objection to the Bancor… that they saw the US as the dismantler of empires and wanted control via the Dollar for this reason.
I can’t remember if he suggested that sacrificing the Sterling area might have made the Bancor possible…. does anyone here have information on this bit of the history?
1) Maybe, is the most I can say.
2) It would help.
3) I have not read the book.
I had a quick look at my copy. It is some time since I read it. This might not answer your question. To other readers of this blog, I would recommend the book.
Harry Dexter White for the US held all the cards. White was arrogant and insecure and resented Keynes who was internationally famous and a prima donna . Britain, however, was effectively a supplicant. Keynes wanted to maintain the Imperial preference system for a decade to enable the economy to recover. White wanted American access to those markets. He was not prepared to sacrifice the future for the dollar. Although it doesn’t seem to have influenced Bretton Woods, he was sympathetic to the Soviet Union and privately thought it was the future-like a number of progressive thinkers of the time. Over sight by the US govt seems to have been minimal.
Keynes even seemed to have supported some of the American proposals believing -according to Steil-that he and the British Govt, thought the US would do the right thing by Britain in the end.
Both the men died a few years later. Steol says the US might be said to have done the right thing in the end in the form of the Marshall Plan -to quote Steil ‘An act of extraordinary American statecraft built on the epiphany that Britain was not actually a rival for power, as White had pegged it, but in fact a desperate ally to be bolstered in the face of a growing Soviet Threat.”
During this time the American reserves flowed out on aid and military spending to counter the ‘Communist threat.’ It did also mean Americans acquired a lot of European assets but the nations added to their reserves. The dollar increasingly came to seem over valued and there was a fear of devaluation which affected the European reserves. In the 1960s there was an echo of today were US wanted Europe to spend more on defence to reduce the outflow. The end of Bretton woods was probably inevitable.
IM very humble opinion Keynes was right but the time might not have been. Will it ever?
I read a very plausible article last week about the idea that the ‘brains’ behind the Trump administration are in fact manufacturing a global financial crisis in order to devalue capital and enable mass acquisition of assets by the billionaire class.
Now this could be dismissed as conspiracy theory and I can’t discount that possibility but there is growing evidence that the authors and contributors to Project 2025 are not just playing with Transhumanism but are fervent believers in its precepts: that the human race is a ‘boot loader’ for the machines that will receive the consciousnesses of the chosen ones and are therefore expendable and that the Earth is already doomed and a temporary refuge on Mars is needed until it is able to repair itself or another home can be found.
I can understand the scoffing that may ensue from reading this and as a theory it is almost certainly wrong and unlikely ever to be fulfilled. The problem is that there appears to be a group of very powerful (mostly) men that do believe this and are hell bent on seeing it through. You don’t have to believe it all but the core of it is that destabilising the financial markets is not a mistake but a policy. The zealotry of Messrs Thiel, Musk, Vance and other less well-known names adjacent to them does nothing to dispel this idea.
Thanks, I will dig out the book and see if I can find my answer.
Thinking about how to discuss and recommend the Keynes plan for the Bancor and global central bank…. I fear my friends reactions might be ‘OMG World domination by bankers?’ or ‘That was a disaster in the Eurozone!’.
I know the Euro was actually not built on this model…
However, in the absence of the surplus penalties proposed by Keynes…. might the new global central bank and Bancor merely function the way you say the Dollar has done….. to allow overconsumption by the rich countries who are currently owed debt, even though it might hollow out our manufacturing and agricultural base over the long term?`
Is it specifically the surplus penalties that allow the equalisation of wealth and development? And are there deficit penalties?
I must try and clarify for myself exactly what the proposed mechanism is…. Specifically in what way the Bancor would not just be a sort of ‘re-naming’ of the central bank deposits at the BIS in Bancor, and an agreement to consciously decide the exchange rates and amend them from time to time….. so that I can argue for it, because the idea does seem convincing, but I don’t want to spread misinformation…
Very fine post. The collective, of which I am part, have been discussing this (one of them is an economist with the Euro Parl) .
Our focus has been energy, but no reason why one could not extend to trade, the EU is a massive trading area & also +/- very keen on laws. In that respect, the USA has been long on rhetoric wrt laws etc & short on action – supporting the rule of law only when it suited it – this has always been the case as the events at the end of both World Wars showed. The planet deserves better than to have the USA “in charge” and using its bully pulpit to call the shots.
The only trouble with a Bancor style system, in my view, is who would actually govern it? Every reserve issuing central bank needs an equal and balancing political power which holds it accountable.
Which global power holds such authority and respect?
The UN is probably the only answer there.
Ths ECB has enough issues just governing the Euro zone. It doesn’t even have total control the entire EU in that respect..yet.
Sadly I can never see a Bancor type system in the future. The US and China would never agree. So I see a fractured world with regional differences and beliefs.
Keynes was way ahead of his time. His idea was genius but sadly proved to be too theoretical, politics won out.
“Canada may be uncomfortably close to the USA”
This morning’s news announced a strategic partnership struck between Canada and China. “Canada seeks to diversify trade links away from US” (The Guardian)
Could it herald a new direction in the multilateral system?
The proximity remains, as does the trade.
I agree that a new system along the lines of Bancor is needed.
On the Naked Capitalism site recently there have been articles offering what might be the end game of the Trump asset grab.
The target is China. China’s preferred method of payment for oil is by barter. It gets oil and in return commits to invests in renminbi in the supplying country. This avoids paying in dollars.
China has also built massive oil storage facilities and has a huge stockpile of oil.
Plus China controls rare earth processing. It has been happy to accept the environmental impacts. Scientific American estimates that with the current know reserves of rare earth elements and if extraction continues at the same rate these elements will be exhausted in 60-100 years.
Trump is expected to claim control of the production of 40% of the oil and gas in the western hemisphere and be able to influence the Arab states not to sell oil to China.
If correct then the UK and the EU can expect serious pressure on where they buy gas and oil and oil with price increases as well.
So the dollar remains remains the reserve currency and the USA stays “top dog”.
But the days of the dollar appear to be on the wane long term.
This vdieo has gone onto Naked Capitalism today.
The idea of a global currency à la bancor is interesting but as others have pointed out, it would be difficult to get adoption. As a thought experiment it would be interesting to think what would happen if there was an All World currency ETF that people / countries could use as an exchange of value.
I don’t know enough about economics to work out how this might affect countries’ motivations in terms of monetary / fiscal policy, ie: if the GBP was 3% of the value of the “world money” etf how would that influence government policy in relation to money supply, knowing that creating more money would reduce the value of GBP as part of WLDMNY.
I’ve been wondering whether it would be possible to use something like an All World stock ETF as a currency. According to chatGPT, there has been some research into this but again the details are too complex for me alas.
Is it not the aim of the Trump supporting Silicon Valley tech bros and others to destabilise the dollar and nation states, whilst trying to set up network states, charter cities, free enterprise zones etc and to freely use cryptocurrencies? In other words fragmentation and instability and would be in deep opposition to the introduction of instruments like the bancor?
While searching for Benn Steil’s discussion of the Bancor and Bretton Woods I came across an interview he did on a website called econlib.org. The title certainly flags it as likely neoliberal in bias….
https://www.econtalk.org/benn-steil-on-the-battle-of-bretton-woods/
But the discussion was quite critical of how the activities of the World Bank and the IMF have played out versus Keynes’s hopes for them. They made remarks that seemed to imply an understanding of the economy as serving political goals rather than existing in a magical algebraic universe. I assumed their implication was that those goals should serve the people…..
However the website’s most up to date entry on the annexation of Venezuela seems to describe an incredible extortion racket dressed up as economic modernisation that is the way I have imagined the IMF has been damaging developing economies at least since the 1970s….
https://www.econlib.org/econlog/avoiding-the-resource-trap-in-post-maduro-venezuela
It’s quite a clear explanation of how they intent to extract the what they call the ‘oil-rents’ at the expense of Venezuelan state spending on it’s citizens.
It is hard for lay readers like me to have a quick alternative plan to hand even when it seems obvious that proposals are unfair.
I think that is what most of us want when we are discussing these issues with friends and family and colleagues… the ability to present credible alternatives…. otherwise conversations always seem to descend into despairing agreement that the rich will always exploit the poor… and that ‘There Is No Alternative’.
This blog is doing exactly that…… helping ordinary people think through problems so that we can understand that TINA is a lie.
Thanks, again.
🙂
I do believe the time for dollar dominance is over, but I don’t think the US will relinquish any power over the IMF and The World Bank, they have too much of a vested interest in them. 1971 was the nub year when the Breton Woods agreement was changed for good, even though it was meant to be temporary, but 1966 was when the World bank was changed. With the introduction of the Investor State Dispute Settlement department (ISDS), of which had a supra-national court installed called, The International Centre for the Settlement of Investment Disputes (ICSID). Allowing corporations to sue nations if their investments were threatened by legislative change. (Ex-FT investigative journalist Matt Kennard called this out “As a replacement for colonisation”.
The Brics nations now leading 11 members are steadily progressing towards an alternate World Bank ie The New Development Bank, The Unit as an alternate currency (Central Bank Clearing Only) and Brics Pay as an alternate Swift Payment system.
My fear is that with the dollar dominance, corporate control of foreign resources, the ability to sanction nations by suspending dollar accounts and the extortionate wealth created for the US through the payment system, the US will never give up this hold. A suitable provocation will be found and the world will be flung into conflict.
Sadly I agree with what Toby Veall says:
“Is it not the aim of the Trump supporting Silicon Valley tech bros and others to destabilise the dollar and nation states, whilst trying to set up network states, charter cities, free enterprise zones etc and to freely use cryptocurrencies? In other words fragmentation and instability and would be in deep opposition to the introduction of instruments like the bancor?”
I am crystallising my thoughts around the notion that:
Secret Banks cause wars…..
Financial courts enforcing the Investor-State-Dispute-settlement lawsuits against sovereign countries cause wars…..
And that there is a global ‘Citizen Defence Agenda’ we could begin to formulate around these two targets that would attack current wealth inequality and approach from a peace-making (not ‘appeasement’) perspective the increasing threat of conflict.
An excellent video again and along with Steve Keen’s articles on the same matter, a really apt and timely intervention. How do you and Steve get these questions asked and exposed?
That’s down to you to give them momentum. Please share them! Steve would agree, I know.
[…] By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future […]
If Trump carries out his threat – to put boots on the ground in Greenland. Would that have any impact on dollar hegemony?
I suspect not, except as part of a slow process of transition.
I have a question, Richard. I follow a Substack by an American of mixed Asian and American parentage, he lives and writes as a commentator on economics and the history from an economic standpoint and lives in China and Manila for work. He says that BRICS has a replacement for SWIFT that I know from experience is expensive, which is cheap, and you can buy from members in your own currency, so no exchange charges. So China will sell e vehicles to South Africa and accept payment in their currency, hold it until they want perhaps fruit from S Africa and pay in S.African rand. He maintains it’s working well and is hitting America which has always made money on selling and buying dollars.
Do you think this is correct?
I know plans for this are under way.
I welcome them. Maybe it is the right step in the right direction. But I am not sure the claim made is justified as yet.
SWIFT is just a messaging system. It is not expensive – big players pay about US 3 cents per transaction and they collectively own SWIFT so share in the profits. Now, you might get charged £20… but that is trousered by your bank (yes, it is a scandal).
Settlement, ultimately, happens in local Central Bank Reserve accounts. I am not bang up to date with what China is doing but I think it is quite well used by many countries. For political reasons they make it attractive to gain influence.
If the move to the bancor system occurs what would happen to gold and silver prices?
I assume in the run up to bancor a peak and post bancor a collapse?
Countries stockpiling gold. What happens if the price collapses? More chaos?
Politely, if you think there is value in gold you deserve all that comes your way.
Where does bitcoin fit in?
Or does it not?
It is not a currency.
Are you aware that in Africa they have moved away from the the dollar for inter continent trading.
I do need a deeper delve to confirm my understanding
Prior cost of 10- 30% added
They deal with the instability question re the differing economies between countries , with real time transfer.
Different regions are creating different system , that are all compatible and plug in so to speak , into this main system
So it appears no dominant currency
It may be one of the reason USA is camping in Nigeria. And I5r34l is allegedly setting sights on Somalia , and explain the seeming importance of Sudan.
there is also the fact Burkina Faso took back the gold , and Niger took back gold and other resources leacinf 10% to the corporations.
Burkina Faso leader has set up a new coalition of the countries in the sahal that is not colonial issued and authorised.
There are, indeed, regional currency unions in Africa.
I think that it is useful to look at the dollar hegemony and what can be done about it in terms of regulatory capture. In effect, Bretton Woods was the regulatory capture of the world trading system by the US Government. Chris Dillow’s Substack posting on regulatory capture in the UK provides some pointers to how ending it could work with his proposal for countervailing power: https://chrisdillow.substack.com/p/on-regulatory-capture
I can see how the BRICS proposal could help this, but the world really needs more than two choices, so the Euro could be a third option as it is already used for trading within the EU. The danger with any single system for the whole world is regulatory capture, which is why I would not want to go down the BANCOR route.
What your video brought home for me, Richard, is that beneath all the geopolitical drama, the real story is institutional design and who ends up carrying the risks created by that design. Whether it’s BRICS experimenting with alternatives to SWIFT, regional currency unions in Africa, or the long shadow of ISDS, the pattern is the same: systems built to protect capital flows tend to generate instability for everyone else.
That’s why I think Laurence’s point about regulatory capture is so important. Dollar hegemony isn’t just an economic fact — it’s a governance structure. And any replacement system, whether Bancor‑style or BRICS‑style, will face the same danger unless it builds countervailing power into its foundations. Without that, you simply swap one centre of gravity for another and the imbalances reappear in a different form.
What struck me most in the video is how quickly these global arrangements translate into domestic consequences. Exchange‑rate shifts, reserve diversification, sanctions architecture — they all land eventually on households with the least insulation. That’s the part that rarely gets discussed, yet it’s the part that matters most.
If the world is moving toward fragmentation, the real question becomes how we build resilience at home so that ordinary people aren’t the shock absorbers of every global adjustment.
The increasing use of one or other non-dollar medium of exchange and settlement of trade (and implicitly, some sort of unit of account/pricing?) seems likely – either BRICS or some other bi-lateral mechanisms, at least for non-dollar-priced commodities (and even some big ones like oil; but there are many other things, materials, semi- and fully-finished items, that are traded regionally).
I agree that bitcoin isn’t money, it’s a speculative asset; but we shouldn’t overlook the potential of other crypto-currency forms; and using ‘blockchain’ for completing all the paperwork and settlement of accounts in bilateral and maybe multi-lateral trading. I have a contact who’s active in SE Asia, who sees this already happening – eg. between Vietnam and others, such as South American suppliers. Given that physical goods are involved, the idea of ‘crypto’ hiding what you’re doing from the government is of course ‘bunkum’, since the goods themselves will move with relevant bills of lading and financial ‘paperwork’ (unless they’re physically smuggled!)
Trump’s increasingly erratic and aberrant behaviour on tariffs etc – and consequences for US trade volumes – will only accelerate this process and reduce demand for USD; as well as making USD reserves less attractive.
I am not convinced, as yet. But, I could be wrong.
On crypto:
I have some very libertarian friends who are into crypto for it’s alleged anti-corruption potential… retaining a ledger of users encoded in the blockchain code and so forth….the guy who invented Cardano/ADA claimed to be setting up payment exchange systems in Africa to reduce dollar dependency… perhaps that has happened?
I explored crypto a bit but came out the other side convinced that for anyone using a non-government issue cryptocurrency, it is simply a way to reduce the legitimacy and power of governments by avoiding using government money for whatever business you are in. I support governments and this future terrifies me.
Plus there’s the AI like energy costs if there were a proliferation of blockchain currency use.
A friend mined bitcoin for a while and had his windows open throughout winter because of the heat generated by the computers in his room!
On a slight tangent regarding Digital Bank Deposits…
A question I posed to the Bank of England when I first started getting interested in tax havens was whether there were serial numbers on the ‘digital deposits’ of Sterling in the various banks in the world. It turned out there weren’t. This stunned me. I still can’t get my head around how we take it on trust from these private banks that the money they allege they have is ‘real’ money.
I have often wondered whether there would be a way to crack open the secrecy jurisdictions and track down a lot of crime proceeds and tax evasion money by requiring that people exchange their Sterling bank deposits for newly issued digital coins and notes of various denominations with serial numbers attached – no blockchain required and no energy crisis problems – serial numbered digital notes and coins in addition to whatever the current safeguards are.
Could this allow the government to globally audit the existing amount of Sterling to allow ‘money supply planning’?
Might this be presented as a ‘modernisation’ of money (like decimalisation?) to make the currency secure against ‘currency debasement’ through fraud or tax evasion that leads to inappropriate growth in the total money supply?
Most likely my thinking has all kinds of mistakes in it that I’d welcome corrections on… only if anyone has the time.
🙂
Secrecy jurisdictions have been cracked open by automatic information exchange. I played a major part in delivering that from 2017 onwards. And remember their banks are the High Street banks of the world. There is no mystery to them. There was just deliberate secrecy and most of it has gone, at least for individuals. Banking in these places is fully integrated into banking elsewhere. Youy are afforidng it a mystique it does not deserve.
I will look that up thanks
🙂