Let’s talk about something incredibly important that shapes our daily lives and economy: the US dollar and its global dominance.
For generations, we’ve observed the world operate under a financial order where the US dollar reigns supreme.
But how did it get here, and what does it mean for nations like ours?
The Dollar’s Ascent to Global Throne
You see, after World War II, a major shift happened.
Before that, the British Pound was the world’s leading reserve currency, largely because Britain had so many colonies and thus the political power to impose it.
But the United States didn’t have that kind of colonial power globally.
So, what did America do?
They used a very simple, straightforward process to become the next reserve currency: accumulate gold and silver.
During the World Wars, the US supplied many European countries, and instead of taking currency as payment, they collected gold.
Gradually, as they amassed the world’s gold, the dollar was able to replace the Pound as the new global reserve currency, solidified by the Bretton Woods Agreement.
This agreement, and the shift in reserve currency status, is fundamentally about accumulating precious metals like gold and silver.
The Gold Standard and Its Shocking Demise
When the Federal Reserve was established in 1913, supposedly by some of the same UK colonial aristocratic families and capitalists, they needed to build public trust in the newly printed dollar currency.
So, they put faces of kings and queens on the notes and hooked the dollar to a gold standard.
Initially, 67 cents was equivalent to an ounce of gold.
Once the dollar replaced the Pound, its value rose, eventually reaching $35 per ounce.
During the Cold War with Russia, people’s trust in the currency started to waver.
After all, we had moved from pure gold and silver coins to cheap metal coins, and then to printed notes.
To shore up trust, they even added the phrase “In God We Trust” to the currency.
This served a dual purpose: increasing public trust in the currency and subtly countering the communist ideology of the USSR, which did not believe in religion.
However, the real turning point came on August 15, 1971.Yes, you heard that right – our very own Independence Day.
This date was chosen intentionally, out of resentment from figures like Nixon and Henry Kissinger towards India’s then-Prime Minister Indira Gandhi, who had recently been named the world’s most popular leader by a Gallup poll.
By 1971, the US economy was in trouble, and its allies were losing faith in the dollar, demanding physical gold in exchange for their dollars.
On that fateful day, President Nixon declared that the dollar would no longer be convertible to gold; the gold standard was abolished.
This decision gave birth to what we now call fiat currency – money printed completely out of thin air, with no underlying base.
And since nearly all other currencies were already tied to the US dollar through the Bretton Woods Agreement, the entire world effectively moved off the gold standard and onto fiat money.
The Petro-Dollar and the “Two Bucket Theory”
After 1971, the process of dollarization intensified.
A crucial step came in 1973 when Henry Kissinger went to Saudi Arabia, leading to the creation of the Petro-Dollar.
This was an “oil-for-security” program: the US would guarantee the security of the Gulf region, and in return, OPEC countries would sell all their crude oil in dollars.
This initiative had two key objectives:
- To further dollarize the world.
- To implement what’s called the “Two Bucket Theory,” which is essentially the weaponization of the US dollar.
This theory describes how the US divides countries into two groups:
One that gets dollars and another that faces sanctions.
A “healthy” country might be led to believe that sanctioning a “rogue” neighbor is necessary, thus compelling it to continue using the dollar.
This strategy of creating divisions among neighbors has allowed the dollar to maintain its reserve currency status to this day.
The “Financial Colony” We Live In
From India’s perspective, this system has profound implications.
The old colonial aristocracies, it seems, wanted to continue imperialism and colonialism, but in a way that wasn’t obvious.
They designed a unipolar dollar trade system and related institutions to achieve this.
Imagine, as the analogy goes, a group of friends going to a restaurant.
One friend, from America, suggests paying the bill in dollars.
Everyone agrees.
Then, this friend suggests that all future transactions between them also be in dollars.
At first, a strong ally, perhaps like the UK, thinks they’ll benefit.
But soon, the others realize that this creates an artificial demand solely for the dollar, while the demand and value for their own domestic currencies decline.
Now, to conduct any transaction, we have to first earn dollars.
To make this “easier,” institutions like the IMF and World Bank were created to provide dollar loans.
This meant that while other countries toiled day and night, producing goods, the US could simply print more dollars and consume from the rest of the world.
This feels like a form of robbery, where we do the production, and someone else consumes by endlessly printing currency without any control, leading to inflation in our own countries.
For example, when India trades with Sri Lanka, our national currencies should ideally strengthen.
Sri Lanka’s currency should gain when it sells to India, and the Indian Rupee should gain when we sell to Sri Lanka, because the buyer needs our currency to purchase our goods.
But for the last 50 years, this hasn’t happened.
All the hard work by other countries has primarily enriched the dollar, creating an artificial demand for it by suppressing the demand for other national currencies.
This is why, in many ways, any country that cannot trade in its own national currency is still a financial colony of the United States.
It’s also why our Central Banks, including the Reserve Bank of India, constantly monitor the Federal Reserve’s policies, making their own decisions only after the Fed’s meetings, because everything is connected to the dollar’s strength.
Our own savings, too, are often parked in dollar reserves.
The Misplaced Dollar Trust Factor
A common misconception is that the dollar’s strength comes from trust in the US economy, its military, or its government.
But we must understand that the trust factor in the dollar was never about the US economy, military, or government itself.
Instead, the trust was simply in the US’s ability to endlessly print dollars because of its reserve currency status.
If we park our savings in dollar reserves, the underlying trust is that even if nothing else, the US can just print money to pay us back.
The Destructive Ripple Effects: From IT to Family Structures
This system, with a currency printed out of thin air and no underlying base, led to very low interest rates in the US economy.
Loans were cheap, projects delivered little, profitability was low, yet valuations kept rising because the rest of the world was parking savings there.
This created a “reserve currency bubble” in the US economy.
We also see how the petrodollars, accumulated by Gulf countries from crude oil sales, had to be recycled and invested back into the US economy.
This recycling directly contributed to the birth of the IT sector in the world.
Beyond economics, this fiat dollar reserve system also fostered a wave of “individualism.”
In rural America, and even in rural India, generations from the 1950s, 60s, and 70s were subtly encouraged to demand their “rights” and “share” from their parents, brothers, and sisters, seeking privacy and more individual rights.
This created an artificial movement that broke down the traditional joint family structures that were the backbone of Asia’s enterprising economy.
As a result, our agricultural economy suffered, and our small and medium enterprises (MSMEs) collapsed.
People took their share, moved to urban cities, invested in stock market companies, and largely became “jobbers”.
This process was replicated in the West too, where social welfare programs like food stamps were introduced, removing the need for parents to care for their children because the government would.
This further fueled family divisions to sustain the fiat currency model.
Traditional sectors like farming, manufacturing, precious metals, and food processing were undermined, their valuations lowered across countries.
Instead, a whole new service sector emerged for these urban “jobbers” who, lacking seed funds for enterprise, now had to take jobs.
The IT sector, as mentioned, was born within this very framework.
The Path to De-Dollarization and India’s Vision
We’ve seen attempts at de-dollarization, notably by US allies in Europe after the 2008 financial crisis.
The endless dollar printing passed inflation to the rest of the world, with no one held accountable.
Even the Middle East is now realizing that much of their crude oil wealth was wasted on radicalization just to keep the dollar system going.
Here in India, a significant shift occurred in 2014, when a nationalist government came into power with the aim of revitalizing the foundations of Sanatan Economics.
This is our path forward, seeking to reclaim our economic autonomy and build a system that truly serves our people and strengthens our national currency, rather than propping up an external one.
It’s a journey of understanding the past to forge a stronger, more independent economic future.
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