| Share of currencies held in global foreign exchange reserves from 1st quarter 1999 to 4th quarter 2023 | MR Online Quarterly share of U.S. dollar in global reserves worldwide 1999-2023. IMF (Currency Composition of Official Foreign Exchange Reserves, International Financial Statistics); Statista.

What is the realistic strategy for “de-dollarisation”?

A version of this article originally appeared in Chinese at Guancha.cn.

Introductory note

At present there is considerable discussion of avoiding the use of the U.S. dollar in international transactions, of alternatives to the dollar as a foreign exchange reserves asset etc. This is sometimes popularly referred to as “de-dollarisation”—although for reasons discussed below this is a confusing terminology.

The reason this discussion has developed, and will continue to deepen, is obvious. The U.S. has for many decades utilised unilateral economic sanctions against countries such as Cuba. In the recent period the U.S. has greatly expanded the range of countries such sanctions are used against—for example to Venezuela, Iran, Russia, and others. Even the supinely pro-U.S. The Economist estimates that the United States has increased use of sanctions fourfold since the 1990s.

The U.S. has furthermore progressively deepened the scale of these economic attacks by increasing the number of countries prevented from using the SWIFT international payments system, seizing hundreds of billions of dollars of Russia’s foreign exchange reserves etc. In the coming period the U.S. will expand such actions, because under conditions of “normal” peaceful competition, the U.S. is condemned to lose economically to socialist China (the reasons for this were analysed in the recent MR Online article “U.S. dooms itself to defeat in peaceful competition with China”). Therefore, to attempt to preserve its hegemony, the U.S. will be increasingly tempted to rip up the existing structure of the world economy—including the generally operating international payments system. Preparation of alternatives to the dollar system is therefore of the greatest importance not only analytically but even more so practically.

There should therefore not be the slightest underestimation of what is involved in this. The U.S. dollar is one of its most powerful and oppressive systems. Its use to help enforce other unilateral U.S. economic sanctions is responsible for the deaths of millions, more precisely tens of millions, of people in its direct and indirect consequences.

The U.S. international dollar system is also used to obtain economic resources from the rest of the world—the U.S. directly extracts approximately a trillion dollars year from other countries, which they could have used for their own development, in order to finance its own economy. A very large part of this is extracted because of the role of the dollar in the international system.

The U.S. dollar system is used as a key weapon to intimidate into adopting wrong economic policies, as well as a direct weapon against, numerous Global South countries.

The U.S. dollar system is now increasingly used to attack major countries, already Russia on a very large scale, and potentially against China.

Therefore, the dollar system is a political as well as an economic issue. Countries, to safeguard their own development, therefore need to see the destruction of the dollar system as a strategic political issue and in taking decisions on de-dollarisation must include this political aspect as well as purely economic ones.

The conclusion is therefore simple. Destruction of the U.S. international dollar system is a fundamental strategic goal of progressive forces—that is countries seeking an independent path of economic development and socialists. No stable progressive global economic order can be established without eventual destruction of the U.S. dollar system.

But precisely because it is such a fundamental issue, and an extremely powerful weapon of the U.S., how to deal with the international dollar system must be addressed with extreme seriousness and objectivity because any mistakes will be ruthlessly punished.

Given the importance of this issue, therefore, it is unfortunate a part of the international discussion on “de-dollarisation” is confused, and regrettably unrealistic, as it fails to clearly distinguish between two different issues.

  • First, the extremely important and urgent work on creation of alternatives to dollar payments, dollar reserves etc for those countries currently or prospectively facing the threat of such U.S. actions. This, as already stated, is crucial for the relatively small number of countries, involving a substantially larger part of the world economy, which already face unilateral U.S. sanctions—Russia, Iran, Cuba and others— as well as countries clearly facing the threat of U.S. sanctions such as China.
  • Second is a concept, put forward in some places, of a general replacement of the dollar system as the main means of international payment—that is a strategy of “de-dollarisation”. Regrettably, for reasons analysed in this article, no such general de-dollarisation is possible or will occur in the coming period. This is because, for fundamental economic reasons analysed below, the disadvantages of breaking with the dollar system for most countries are greater than the advantages—and therefore the majority of countries will not break with the dollar system. Presentation of “de-dollarisation” as a general strategy, because it will not work, would lead to discrediting of the forces putting it forward and possible monetary losses for any institutions attempting it. Such failures, by discrediting those advocating them, may then be used by the U.S. to undermine, and to urge avoiding taking, the very important necessary tactical measures to create alternative payments systems for those countries which are, or potentially will, face U.S. sanctions. As forces advocating putting forward such a general strategy of de-dollarisation have good and progressive intentions, but unfortunately a wrong analysis of the objective situation, it is necessary to have a friendly but firm discussion to clarify the issues involved.

1. The fundamental issues in “de-dollarisation” are not technical but economic

The fundamental reason for confusions is because “de-dollarisation” is sometimes wrongly envisaged as a technical issue—avoiding U.S. controlled payments systems such as SWIFT, creation of the technology for alternative systems to this etc. Or, to be more precise, what are presented as technical problems/issues are in fact fundamental issues of an economic system. In parallel, another part of this discussion presents alternatives such as “payment in national currency” as some sort of relatively simple alternative. But such conceptions are wrong and will therefore lead to erroneous conclusions as to what can practically be achieved.

There are certainly specifically technical issues of international payments system etc which must be tackled. But by far the most powerful and important questions involved in any discussion of “de-dollarisation” are not primarily technical but are economic. More precisely they are the inescapable consequences which flow from the most fundamental issues of a monetary system and therefore involve some of the most powerful of all global economic forces. These fundamental economic forces, and the consequences which flow from them, therefore determine what is and what is not practically possible in the present global situation in the coming period.

It should be made clear that this objective situation exists quite regardless of the fact that the U.S. gains great and unjustifiable advantages from the dollar’s role in the international system and in principle its replacement would be highly desirable. But in serious matters, as noted, of which “de-dollarisation” is very certainly one, it is necessary to strictly separate what is desirable in principle, and which will occur in the long turn, from what is practical in the coming period.

Because this issue is extremely important, and some confusion on it exists among forces that certainly have good and progressive intentions, this article therefore systematically examines the fundamental issues involved in the functioning of a monetary system which cannot be avoided—and their practical consequences.

2. The difference are over what is practical and why—not what is desirable

First, it should be made clear that there is no difference on the goal or what is desirable—that is to eliminate the international role of the dollar. The difference is over what is practically possible in what timescale, and therefore what role “de-dollarisation” can play in strategy.

To clarify what is involved, a simple comparison might be made with the classic Marxist position that it is necessary to “destroy the bourgeois state apparatus”—whose centre is armed bodies of people. That is entirely correct as a strategic goal in a socialist revolution—it is confirmed by the Russian Revolution of 1917, the civil war during the Chinese revolution, in Cuba and in other revolutions. But if this entirely correct strategic statement is taken as an immediate tactical guide—interpreted as a suggestion to immediately launch military attacks on the army, to assault police stations etc—it will lead to severe defeats and losses.

Or, to take a more developed analogy, consider the strategy of the Chinese revolution from 1927 until the end of World War II. In this period the CPC/PLA, led by Mao Zedong, set out to systematically build up base areas in the fight against first the Kuomintang (KMT) and then the Japanese imperialists—the reasoning behind this strategy was set out most systematically in Mao’s famous work “On Protracted War”. However, within the framework of this strategy, Mao Zedong repeatedly and strongly opposed the PLA initiating centralised confrontations with the KMT or with Japanese forces—on the occasions when Mao Zedong was over-ruled and such centralised military confrontations occurred, most famously in the period leading to the Zunyi Conference in 1935, they invariably ended in CPC/PLA defeats, with proof of the correctness of his strategy then leading to restoration of Mao Zedong’s leadership. By 1945/46, pursuing this strategy, having ground down the KMT and Japanese in numerous decentralised struggles, the PLA had grown to over one million troops controlling an area with a population of around one hundred million people. Only in 1947/48 did Mao Zedong change strategy and launch numerous large-scale offensives against the KMT.

The reasoning for this strategy of building base areas while avoiding initiating centralised confrontations with the KMT/Japanese imperialist army was set out in “On Protracted War”. The Japanese, and earlier the KMT forces, were strong. If the CPC/PLA launched central offensives against the KMT or Japanese these would be (and were) defeated. The CPC/PLA should therefore avoid initiating central attacks/confrontations and build up its bases—only switching to initiating central confrontations when their own forces and bases had been greatly strengthened and the enemy greatly weakened including by repeated local defeats.

Those forces who drew from the correct conclusion of the need to fight the KMT/Japanese imperialists the view that a centralised military offensive should be launched against them may well have had good intentions. But it was Mao Zedong who had the realistic analysis of the situation. His strategy of building bases and avoiding initiating a centralised attack against the KMT/Japanese imperialists, needless to say, did not represent Mao Zedong’s/the CPC’s capitulation to these enemy forces but a realistic view of the strength of the enemy and strategy which flowed from this.

In the present case of wrong analyses of de-dollarisation, the damaging results of a wrong policy of would be:

  • It won’t work practically.
  • Because it won’t work practically it will discredit and lower the credibility of progressive forces who attempt to implement it or propose it and lead to damaging losses to countries or institutions they lead.
  • Focusing on de-dollarisation, which won’t make much practical economic difference for the great majority of the countries, diverts attention from discussion of the measures which will improve economic performance and therefore benefit the population and show the credibility of progressive forces.

The practical conclusion following from this might be summarised as follows. There should be as much de-dollarisation as possible: but in practice in the coming period this will be limited and for a significant period, let us say a minimum of the next 10-15 years, probably significantly longer, the dollar will be the dominant international currency—that is, the overall global economic system will not de-dollarize, nor will most regional economic blocs.

The reasons for this are dealt with below. In this article, the most immediately practical issues will be dealt with first, because they are the easiest to understand and most immediate, and then the most fundamental issues of economics (as analysed by Marx) will be dealt with. However, it should be clearly understood that this is simply for reasons of explanation. In reality the most fundamental economic processes determine the immediate practical issues.

3. Money must be a universal equivalent

The starting point is that it must be clear what money is. Money, in Marxist or other terms, must be a “universal equivalent”—that is it must be capable of being used to buy all (or almost all) goods. Such a universal equivalent is necessary because if it does not exist exchange would have to be via different systems of barter—which would make the efficient functioning of an economic system entirely impossible.

4. Therefore, countries will not wish to hold currencies that cannot be traded internationally

This fact that money must be a universal equivalent in turn immediately means countries will not wish to hold currencies that cannot be traded internationally—as that means any such holdings can only be used to purchase goods from the country which issued the currency, or any small number of states prepared to accept it as payment. Anything which can only be used to purchase goods from one, or a small group, of countries is not a universal equivalent—that is it cannot play the role of money in any universal and international payments system.

5. Why most attempts to create regional currency blocs won’t be successful

This fact that money must be a universal equivalent affects the creation of proposed bloc currencies such as the SUCRE promoted at one time in Latin America, the proposal put forward by a few people for a BRICS currency etc. Even if they were accepted by all members of the bloc they will not be accepted by other states, so they are not a universal equivalent.

The reason that one regional currency, the Euro, works is because the member countries are at comparable levels of economic development and constitute such a large part of the world economy that all countries wish to purchase goods from them. This does not apply to any other proposed regional currency bloc.

6. Why there won’t be a “BRICS currency”

The largest of the sometimes proposed alternatives in “de-dollarisation” is a “BRICS currency”. It is, therefore, necessary to be clear why a “BRICS currency” won’t come into existence—or to be more precise, if a BRICS currency were created it would be deeply damaging and therefore it won’t be created. This flows inevitably from the character of any very large economic area.

Any very large economic region—such as BRICS, the EU, the U.S., or China—will inevitably have widely different levels and rates of growth of productivity within it. Such different rates of growth of productivity will therefore necessarily be reflected in differing rates of growth of competivity and different prices movements. In regions without a single currency the consequences of these relative shifts in productivity can be mediated via changes in exchange rates, but in a region with a single currency this, by definition, cannot occur. The resulting unevennesses are instead overcome—in place of currency devaluations/revaluations—by a combination of: (i) changes in relative nominal prices between regions—for example wages falling relatively in regions with low productivity growth compared to those with high productivity growth; (ii) budgetary transfers from regions of high productivity/high productivity to those of low productivity/low productivity growth.

Even in countries with strong centralised states, and therefore a large capacity for regional budgetary transfers, such as the U.S. or China, significant regional unevennesses/strains can develop within their single currency state/region (e.g. the long term position of the U.S. “Southern states” compared to “Northern” ones, the well known differences between coastal and inland regions in China etc). In currency regions with comparatively low budgetary transfers, such as the Eurozone, these unevennesses have become extremely powerful—ultra deflationary pressure exerted on Greece during the post-2008 “Euro-crisis” being the best known example.

But in BRICS there is no central redistributary budget at all—no one seriously proposes significant budgetary transfers from India to Brazil, Brazil to China, Brazil to South Africa etc. If there were a single currency in BRICS, therefore, as exchange rate movements were excluded, the only adjustment mechanism would be changes in nominal prices. To maintain competition with the high productivity increases within a BRICS currency region such as China lower productivity increase areas, such as Brazil or South Africa, would therefore have to continually adjust downwards their relative nominal prices—most importantly wages. In short, entry into a single currency unit in BRICS would create massive deflationary pressure on at least Brazil and South Africa, and in the slightly longer term Russia and India, compared to China. This would be highly undesirable if it were actually possible. But the reality is that these negative consequences are so powerful, and so undesirable, that a “BRICS currency” will not come into existence.

Some talk of a “BRICS currency” attempts to avoid this issue by saying “of course” what is proposed is not a single currency, therefore with a single unchangeable exchange rate, but some type of non-SWIFT payments mechanisms or virtual monetary unit within which there would not be fixed exchange rates. This would be strongly desirable, although India might well wish to sabotage it, but it is a “BRICS payments system”—it is certainly not a “BRICS currency”, and only confusion and illusions is caused by not calling something by its right name. Among states which face the actuality or threat of U.S. sanctions, which certainly includes Russia and China, development of such a payments system is a high priority. But it is a payments system and not a currency.

7. Confusion on use of “national currencies” in bilateral trade

The fact that money must be a universal equivalent also determines the issues of bilateral trade and investment and makes clear why “trade in national currencies” does not provide a panacea or general alternative for de-dollarisation—as is sometimes presented.

If trade and investment balances were absolutely equally between two countries of course no problems would exist—they would simply purchase exactly equivalent amounts of each other’s goods in the two currencies. But in practice such a perfect balance almost never occurs—in bilateral trade and investment one country will tend to run a surplus and the other a deficit. If a currency is not capable of being traded universally internationally, then in the case that trade and investment is not balanced, that means that one of the countries involved in the trade is forced to accept a currency for its goods which is in practice worthless as it cannot be used elsewhere. That in fact means that one country is subsidising the other.

Subsidising another country might be decided on for political reasons, but that should be clearly understood as a political choice and not be presented as a purely economic system. There are typically severe practical or policy limits to the degree to which one country will subsidise another—including hidden subsidies in the form of accumulating currencies which it cannot use.

8. Currencies do not maintain stable exchange rates

Even in cases where a currency can be universally traded against other currencies most currencies do not maintain stable exchange rates. This means that while there may be talk about use of “local currencies” in fact in practice it is not really a “bilateral” relation in the sense that both currencies are equivalent—it is necessary to understand which of the countries’ currencies will be used.

If a country is forced to accept a currency which is devaluing this means that it is accepting a loss on transactions. This is why many so-called agreements to trade in “local currencies” are not really that at all. They are formally or in practice agreements to use one of the country’s currencies—that of the country having the harder currency. Thus, for example, the former agreement between Argentina and China was not for trade in “local currencies”—that is to use both the stable strong currency, the RMB, and the sharply devaluing currency the Argentinian peso—but was an agreement to trade in RMB. If China were forced to accept payment in the rapidly devaluing Argentinian peso it would in fact be losing on the transactions and subsidising Argentina. This applies in all cases where the “common currencies” do not have stable exchange rates—which is the majority of currencies.

An alternative in bilateral relations is that the currency of a third country can be used—for example Russia reportedly told India that it did not wish to keep accumulating the (devaluing) Indian rupee but wishes to be paid for oil in RMB. But that is not use of common currencies, it is merely the choice of another external currency than the dollar.

9. The law of one price

To turn to the most fundamental issues, the functioning of the monetary system, and its monetary unit, is determined by the fact that an economic system in which exchange takes place cannot function without a single price standard—or, to be more precise, the economic “law of one price” will operate to ensure that there is only a single price standard. The reason for this is that if more than one price exists in a system then arbitrage trades will remove the difference—because if there is more than one price it is profitable to sell the high priced good, pushing down its price, in order to buy the low priced identical good, thereby forcing up its price, until the two prices become equal.

The only way that this can be prevented is by creating a situation where the goods cannot be bought and sold—that is by various forms of partial or near complete economic autarchy. Such a system did exist, to some extent, during the period of autarchic/semi-autarchic economies in the 1930s—this, however, was a product of, and helped maintain, the greatest crisis in the history of the world capitalist economy and cannot be the basis of a properly functioning productive international economic system.

10. There can only be one price standard

As there can only be one price in the system therefore there can only be one measuring unit. Or, to expand the point a little for clarity, if other prices are quoted they must simply be an expression of this fundamental single price unit. Thus, for example, the exchange rate of the dollar and the Chinese RMB at the time of writing is $1 = 7.24 RMB. If a good costs $1 or 7.24 RMB that does not mean that it has two prices, it simply means it has a single price.

11. The conditions for transition from one price standard to another

As there can only be one price standard in any functioning economic system the transition from one price standard to another cannot take place gradually, or in a mixed way, but must take place sharply, and therefore completely in a very short time frame.

For this reason, there have only been two international price systems in the last 200 years—the gold standard, from its official introduction in 1816 until 1931, and the dollar standard from 1945. The period between the two, the Great Depression, was the greatest period of crisis and chaos in the history of capitalism—World War II definitively transferred the price standard from gold/pound to the dollar reflecting the reorganisation of the entire global economy.

For this fundamental reason that there must be a single price standard for a market economic system to function, all attempts to gradually introduce new price standards by means such as a “basket of currencies” etc will not work—periodic theoretical proposals to introduce them therefore have never, and will not, gain any significant take up. After the dollar there could only be a transition to a new single price standard, not a mish mash of systems. As this will require an immense economic change there is great inertia in maintaining the dollar system and the dollar cannot and will not be replaced until there is a new single price standard.

Nor will there be simply a legal, verbal or any other form of “agreement”, which is not backed by real productive capacity, to introduce a new major international price standard—“agreements” are much too flimsy for the functioning of something as powerful as the international monetary system! Gold could function as an international currency unit because it had a price of production (a high one)—Marx, for example, devoted hundreds of pages to analysing this. The dollar could function as an international currency unit because countries wished to purchase products from the U.S.. It is a misunderstanding, therefore, to refer to the dollar as merely “fiat money” because technically, in theory, the Federal Reserve could issue any number of dollars. Although the dollar is no longer tied to gold the real backing of the dollar is the productive power of the U.S. economy and the willingness of countries to purchase its products. “An agreement”, in contrast to the reality of the U.S. economy, produces nothing and in practice countries will, therefore, not rely on it for their international monetary functioning.

In principle the RMB, as it is a single monetary unit, with the backing of China’s productive economy, could play the role of the anchor of such a system but in practice in the present situation it cannot as:

  • China does not yet possess the dominant weight in the international economy which would create such a system;
  • For the RMB in practice to operate as such a unit China would need to abolish capital controls—which would be a disastrous step for its economy under present conditions, leading to the exit of the equivalent of trillions of dollars from China and therefore devastating China’s domestic economy. Such a policy is therefore to be extremely strongly opposed and it is entirely correct that China has not implemented any such measures.

12. The advantage of holding foreign reserves in the universal price unit

Given that the reality there can only be a single price standard there are considerable advantages to holding foreign exchange reserves in this price unit. The reason for this is that by definition it eliminates any possibility of losses through devaluation of any other currencies which might be held instead of the fundamental price unit. (It also eliminates any possibility of gains from revaluation of other currencies against the standard price unit but this would be regarded as attempting to gain from currency speculation—which is not the fundamental or key objective of foreign exchange reserves). Furthermore, this advantage of stability and predictability creates strong demand for the single price unit currency—therefore putting upward pressure on it and making it a hard (i.e. stable or appreciating) currency. Indeed, it would be impossible for a currency which was not a hard one, but was rapidly devaluing against other currencies, to function as the universal price standard.

13. The downside risks and costs of de-dollarisation

As a result of the above facts, countries/companies/institutions engaging in de-dollarisation therefore necessarily incur the following costs/risks.

  • They may accumulate currencies which are not universally tradeable and will not be accepted by other countries. That is, in practice they would accumulate parts of their foreign holdings/reserves which are useless—which is equivalent to losses due to wiping out part of their foreign holdings.
  • They may acquire purely regional currencies which cannot be used outside small groups of countries—i.e. which cannot function as a universal equivalent.
  • They may accumulate currencies which devalue against their own, or other countries, currencies—that is they may suffer losses of their foreign holdings.
  • There are very significant costs in creating alternative financial structures, IT systems etc to handle the transactions from new de-dollarized systems.
  • If they engage in de-dollarisation they may incur sanctions from the U.S..

In short countries/companies/institutions engaging in de-dollarisation either suffer, or run the risk of suffering, significant costs and risks. In contrast there are no equivalent immediate upside gains from abandoning the dollar. Therefore, the great majority of countries/companies/institutions will not de-dollarize unless forced to.

14. The position of China

But, equally, the attempt by the U.S. to exclude from the international dollar system the world’s largest goods trading nation, China, would be deeply disruptive to the entire global economy and a huge number of other countries. Therefore, whereas voluntary withdrawal from the dollar system by a country would bring it definitive disadvantages and no significant advantages, and therefore would not be supported, an attempt by the U.S. to exclude a country such as China from the international dollar system would be damaging to a very large number of other countries and would therefore be opposed by them.

The U.S. will certainly become increasingly tempted to try to exclude China from the international dollar system in order to maintain its hegemony because the U.S. will continue to lose to China in peaceful economic competition. But the U.S. would face strong opposition and damage to itself in attempting to do so—as China is not a peripheral part of the international economy but the world’s largest goods trading nation. Therefore, whether the U.S. will be able to able to carry out such an attack will depend on the development of the international economic relation of forces. Most important within that framework will be China’s continuing outperformance of the U.S. and China’s development as a trading and investment partner for an increasing number of countries. But also, the greater the degree to which China is technically prepared to face a U.S. attempt to exclude it from the international dollar system, and therefore the lower the U.S. estimates its chances of practical success to offset the inevitable opposition it would face from other countries, the less the chance the U.S. will make such an attempt.

In summary, the way the balance of advantages and disadvantages of membership of the international dollar system works out in the specific case of China is the following. China, as with other countries which do not at present face U.S. financial sanctions, has no incentive to voluntarily break with the international dollar system—that it is it has no national incentive to initiate an offensive attack on the international dollar system. But, given the likelihood of U.S. sanctions against China, China has great practical incentives to build up the defensive alternatives that would be used if the U.S. attempted to exclude China from the international dollar system. It also has an incentive to ensure means of payments with countries currently facing U.S. sanctions.

15. What is the balance of benefits and costs?

Given this balance sheet of benefits and costs the situation is clear. For countries subject to U.S. sanctions, of course, the benefits of de-dollarisation evidently outweigh the costs, but for the great majority of countries they will incur significant costs for no great benefits. Therefore, the great majority of countries will not de-dollarize, that is they will continue to use the dollar for the majority of trade, international finance, and foreign exchange purposes. Consequently, the dollar will not be replaced in the next period as the international financial unit. De-dollarisation as an international economic system will, therefore, only take place when the dollar is replaced by another single price unit—probably the RMB but this will not occur in the short run.

A few countries, of which the most important is China, are in an intermediate situation—that is, they are threatened by the U.S. with unilateral sanctions, requiring practical preparations to deal with this, but they will not incur the costs of actually de-dollarizing unless forced to.

In summary, de-dollarisation is highly significant for a small number of countries, but any general de-dollarisation will not take place in the next period. Therefore, de-dollarisation cannot be presented as a general strategic way forward. It is not that de-dollarisation is undesirable, it is simply won’t work in this period for the reasons analysed above. Therefore, de-dollarisation is only decisive in the short run for a small number of countries and cannot be a general international strategy.

16. Don’t confuse economies with politics—the issue of avoiding sanctions

Within the above framework for some countries, those subject to U.S. unilateral sanctions, de-dollarisation is of course imperative and urgent—this is obvious for Russia, Iran, Venezuela, Cuba and a number of other states. As the U.S. is increasingly resorting to the most serious type of unilateral financial sanctions (blocking of SWIFT payments system, seizure of other countries foreign exchange reserves etc) technical preparations for de-dollarisation, as already noted, are important for all countries which are threatened by the U.S.—which includes China. But the large majority of countries are not at present affected by U.S. sanctions and the economic costs of de-dollarisation are greater, for the reasons analysed, than the costs of not de-dollarizing. Therefore, the great majority of world trade and investment will continue to be carried out in dollars—that is the dollar will continue to be the dominant economic currency for a substantial period, let us say for at least the next 10-20 years. This is not a technical issue but is rooted in the fundamental functioning of the international economic/financial system.

17. Failures of de-dollarisation will discredit progressive forces if they put it forward as a strategy

Because de-dollarisation is a general policy that won’t work, proposing it as a general, or internationally central, policy way forward in the next period will discredit those proposing it and reduce their credibility as any general moves in that direction will fail for the reasons already given.

For progressive governments in office, or for international institutions led by progressive forces, if voluntary de-dollarisation is implemented it may at best lead to failures without practical effect or even to significant financial losses—damaging in itself and also discrediting progressive forces.

18. The Economic policy

Finally, the current focus on debate on de-dollarisation in some circles is harmful to the degree it diverts attention away from progressive/Marxist policies which are crucial for economic development.

The latter all flow from Marx’s analysis that increasing socialisation of labour is the driving force/engine of economic development. Such policies are:

  • State ownership of strategic large companies, that is those with high socialisation of labour, which are important in themselves and that would allow control over the overall macroeconomic investment level to be achieved. State ownership of its largest companies is key to China’s economic success.
  • Making a transition from labour intensive to capital intensive development by increasing investment levels, including by state investment, which is used as the basis for industrial upgrading, making the transition from commodity production to more advanced industrial production etc.
  • Creating the basis for increased socialisation/division of labour nationally by infrastructure investment and other means.
  • Increasing beneficial participation in international division of labour both via initiatives of regional integration and globally.
  • Increasing education and training of the work force.
  • Increasing resources to research and development—that is, socialisation of labour via integration of science and technology into the productive process.

These are the type of policies, in line with Marx’s analysis, that have been demonstrated to bring successful economic development. In particular the most successful socialist economies (e.g. China, Vietnam) used these methods. Neither of them pursued the path of de-dollarisation.

Paradoxically, therefore, while appearing to be extremely radical and “left”, the focus on de-dollarisation diverts attention from what are the most crucial economic issues for development in most countries.

19. The Conclusion

To sum up. It is correct that the dollar is one of the most powerful instruments of the U.S. state. The facts given in this article indicate why it is even more powerful than is widely understood—because it is rooted in the most fundamental features of the monetary system as analysed by Marx. The dollar, therefore, cannot be replaced as the international currency unit without an entire change in the global international situation for which the objective international conditions do not yet exist.

Just as it is usually a wrong military strategy to focus a frontal assault on the enemy’s strongest position, instead of seeking the weakest points to attack, it is very bad strategy to make the crucial strategic line of advance to be a proposed frontal attack on the U.S.’s strongest points—of which the dollar is one of the strongest.

To return to the point made at the beginning, to propose “de-dollarisation” as a strategic way forward, it is rather like deriving from the correct Marxist analysis that it is necessary to smash the bourgeois state apparatus, which is centred on armed bodies of people, the conclusion that the correct tactic is to immediately launch armed attacks on the army, police etc. Or it is to make the mistake of those who opposed Mao Zedong’s strategy of building and strengthening bases and instead advocated initiating central confrontations with the KMT/Japanese imperialists. It won’t work and if attempted will lead to losses.

Instead of the chimera of general “de-dollarisation”, the correct Marxist strategy of development pursued by countries such as China should be taken as the model to be studied. These countries pursued development strategies based on Marx. Socialist China has the most rapid sustained economic development of any major economy in world history, a strategy of “de-dollarisation” played no role in that development. Instead, China achieved its overwhelming economic success through basing both its domestic and foreign economic policies on Marxist economics—as Xi Jinping has stressed China’s “political economy must be based on Marxist political economy and not any other economic theory”.1

20. Summary

In summary three essential tasks should be undertaken in regard to the necessary strategic objective of replacing the international dollar system:

  • To practically and urgently build up the systems for avoiding U.S. financial sanctions by those countries currently or potentially threatened by the U.S..
  • To build and expand present bases which avoid U.S. dollar sanctions—such as use of gold as a reserve, use of national currencies between countries with relatively stable exchange rates, agreed use of currencies other than the dollar for trade between countries without stable exchange rates—which may include use of the stronger of the national currencies involved in bilateral trade arrangements, pricing of commodities in currencies other than the dollar, arrangements of currency swap arrangements and other measures.
  • To create the maximum economic development, including mutual trade, between countries other than with the U.S.—it is China’s successful Marxist economic strategy, not the erroneous concept of general “de-dollarisation”, that should be studied by countries seeking economic success.

This is an expanded version of an article which originally appeared in Chinese at guancha.cn.


  • Xi, J. (2020, October 11). Opening Up New Frontiers for Marxist Political Economy in Contemporary China (November 23, 2015). Retrieved from Qiushi: http://en.qstheory.cn/2020-11/08/c_560906.htm
Monthly Review does not necessarily adhere to all of the views conveyed in articles republished at MR Online. Our goal is to share a variety of left perspectives that we think our readers will find interesting or useful. —Eds.