Letter of May 2019

EDITOR:

A new word has appeared in international news lately – dedollarization. It refers to the process whereby foreign countries, especially Russia and China, stop using US dollars in their trade. Dedollarization may seem like a bad thing to those in the ‘Make America Great Again’ crowd, but I will argue that it isn’t. Rather, I see dedollarization – not tariffs or a trade war – as the only way to get rid of the trade deficit and bring more jobs back to America.

America has the world’s largest trade deficit because it consumes more than it produces. Under the old system of the gold standard, trade deficits were impossible – exports had to balance imports, or else a country would run out of gold. But then, the Federal Reserve gained the ability to print an unlimited amount of dollars and export its paper currency in lieu of actual goods. Thus, exports no longer had to balance imports, and there could be a net loss of jobs overseas.

In effect, what happened was that the Federal Reserve replaced the American worker. Foreign laborers now do America’s work, in exchange for dollars that the Fed has created out of thin air and lent to the government or to monied elites. Ordinary Americans are left out in the cold.

But America will lose its ability to consume more than it produces when other countries dedollarize. And I will not be lamenting the end of American hegemony. If being an ordinary country means that America must rely on its own workers to make its own goods again, I see that as a good thing.