Rise and Fall of the Dollar. Part V: Countdown

In 1998, American financier George Soros revealed the secret of the world economy's center-periphery structure in his candid book The Crisis of Global Capitalism. "Financial markets," writes Soros, "absorb most of the savings and profits generated worldwide, channeling them to the center, from where they are then sent back to the periphery either directly through financial instruments like stocks and bonds, or indirectly through transnational corporations... Therefore, the center receives the lion's share of all income... The main reserve currency is the dollar, and all existing international financial institutions are under the influence of the US and other countries forming the center of the international market system."

The overaccumulation of periphery countries' savings in the US served as the starting point for the global financial crisis of 2008-2009. Since then, trillions in liabilities of American banks, unable to find profitable placement in the "Rust Belt," Silicon Valley, or Wall Street, have transformed into speculative capital flows. Circulating through stock and credit markets of various countries, they leave behind funnels of debt crises, devaluations, and political upheavals. Today, the cost of resolving this issue has grown immeasurably. Hence—trade wars, deglobalization, and escalation of armed conflicts. The world economic crisis, triggered by an excess of speculative dollar assets, has entered an irreversible phase and objectively requires replacing the dollar standard. This is driven by a chain of cause-and-effect relationships (Fig. 1). Let us examine them in more detail.

Figure 1 – Causal relationships of dollarization in the world economy

Source: Kuznetsov A.V. The US Dollar as a Prerequisite for the Crisis-Prone Nature of the World Currency-Financial System // Finance: Theory and Practice. 2024. Vol. 28. No. 6. P. 175.

Prices of all strategic commodities traded on international exchanges—from food, beverages, and fertilizers to natural raw materials, metals, and hydrocarbons—are denominated in dollars. The dollar remains the primary currency for export invoicing in South America and the Asia-Pacific region.

To gain access to dollars, the currency of international settlements, other countries of the world (except the US) must supply a certain amount of goods and services to the global market beyond their domestic needs (or rather, at the expense of meeting those needs).

The priority development of export-oriented industries diverts capital resources from other vital sectors, causing chronic technological lag behind the US.

To maintain international competitiveness of their export goods (mostly raw materials and low-processed products), periphery countries must constantly reduce domestic costs—either through devaluation of their own currencies or by implementing austerity policies and cutting internal expenses. Both actions lead to a decline in absolute and relative per capita income levels, reduced labor productivity, and purchasing power. The inability to organize domestic high-tech production to sustain high economic growth rates is compensated by increasing external debt to meet internal needs for scarce goods and services.

Dollar earnings are highly attractive to exporters, as dollars can buy any strategic goods on the world market—something impossible with virtually any other national currency without risking sanctions from the White House.

Meanwhile, most of the dollar liquidity earned on the world market by periphery countries is immediately sent back to the center to form currency reserves and avoid domestic inflation. These reserves are placed in American banks, which use them to issue dollar loans to the rest of the world, thereby increasing the size of global dollar debt.

Due to underdeveloped national financial markets, during crises, periphery countries face capital outflows, sell-off of national assets to foreigners, and rising debt burdens.

Reduced production amid growing global debt leads to rising global inflation. In an effort to shield themselves from negative shocks in the world market, states erect protectionist barriers, leading to the breakdown of global supply chains.

Before the global financial crisis, dozens of developed countries ran trade deficits, including several Eurozone members. Since then, the US has become the main consumer of excess goods, with its share of net world imports rising from 50% in 2009 to over 80% in 2025. The US imposition of import tariffs on trading partners creates risks of retaliatory actions, potentially leading to a sharp contraction of traditional export niches in the world economy.

US sanctions policy, including massive military actions against disloyal countries, destabilizes fuel-raw material and food markets, further widening the income gap between center and periphery (Fig. 2).

Figure 2 – Income gap between center and periphery of the world economy (per capita income by purchasing power parity, 2024).

Source: Calculated based on IMF data.

* * *

Given periphery countries' limited access to advanced technologies, the income gap in the world economy will only widen in the future. Under such conditions, sustainable development on a global scale seems unlikely. However, this is not just a problem for developing countries. The income gap is also growing within developed nations (see Part I of this article series). The latter are theoretically still in the "pro-American" center but have in fact long been pushed by Uncle Sam to the periphery of the "international market system." There is only one way out—gradual dismantling of the existing world monetary order. The greatest interest in this is shown by... London, which for decades has been making significant efforts to implement its global "plan." The next article will address this.

Author: Doctor of Economic Sciences, Professor at the Department of World Economy and World Finance, Financial University under the Government of the Russian Federation Alexey Vladimirovich Kuznetsov.