What Is the Biggest Threat to the US Dollar?

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In case you hadn’t noticed, we’ve entered a rather unstable period in the world.

Russia’s war in Ukraine, rumors of war between China and Taiwan, and the tenuous nuclear situation involving Iran and Israel are just a few of the many uncertainties in the world today.

In light of this rising uncertainty, many have said that the U.S.-led world order is ending—if it’s not already over. I have certainly been among those who think that’s the case. I still believe it to be true, but not necessarily inevitable.

US Currency Hegemony

One of the most significant markers of economic and political dominance globally is the currency of the hegemonic power. A powerful country often has a powerful currency—but not always. In the Soviet era, for example, Russia was powerful, but the ruble was still not wanted by most of the world.

The United States, on the other hand, has been the dominant economic, military, and diplomatic power in the post-war world. But more than that, it offered an international order and financial system that was generally a net benefit to participants. (If it wasn’t, communist China would never have lobbied—and lied—so hard to join the World Trade Organization.)

Accordingly, as the leader of the global trading system, the U.S. dollar has been the world’s reserve currency for all of that time.

China’s Rise Is a Challenge to US Hegemony

But over the past 20 years, China has risen to challenge U.S. economic and political dominance in the world. It’s now the second-largest economy in the world, at least by the GDP numbers that the Chinese Communist Party (CCP) provides.

Of course, China, too, certainly has its admirers. Most aren’t representative democracies but rather on the more authoritarian side. Others are ex-admirers who have been exploited by debt traps and lost control of their resources. These are important distinctions that I’ll return to in a moment.

What’s more, it was no surprise that in the recent Winter Olympic Games hosted in Beijing, China launched the digital yuan, the world’s first central bank digital currency (CBDC). Some regarded the launch as a failure because the amount of transactions at the Games wasn’t spectacular.

But in some very important contexts, it wasn’t a failure. China was the first major nation to debut a CBDC. That’s significant in and of itself. It also points the way for ever more control over the Chinese people because a digital currency doesn’t belong to the one who earns it. It belongs to the bank that holds and controls it with a keystroke. In both these contexts, the e-yuan is—and will be—a success for the CCP.

And as many have pointed out, the e-yuan may well challenge the U.S. dollar’s position as the world’s reserve currency. Russia is certainly helping, as are Iran and other trading partners, possibly even Saudi Arabia.

Epoch Times Photo
A worker at the front desk of Prince Ski Town Hotel checks the phone behind a sign saying “digital yuan (e-CNY) is accepted” in Zhangjiakou, China, on Dec. 4, 2021. (Andrea Verdelli/Getty Images)

A Shift in the World Order Is Afoot

The significant events mentioned above, and many others around the globe, point toward a change in the world order and the underlying assumptions of American hegemony upon which the world has functioned reasonably well for the past seven decades.

This trend is noteworthy. The world is rapidly dividing into authoritarian and democratic blocs. It’s no coincidence that China’s main allies are authoritarian nations without dismal economies. Developed democracies should want nothing to do with China’s currency. All the United States has to do is lead the free world responsibly with sound economic and fiscal policies.

But that’s not happening with the Biden administration.

The challenge to the U.S. dollar isn’t the instability of the world. In fact, it’s the very opposite. History shows us that when much of the world becomes unstable or uncertain, the world’s money quickly migrates to the U.S. for safety.

But if it’s not global instability that threatens the United States as a global hegemon and the U.S. dollar as the global reserve currency, then what does?

It is global uncertainty. More to the point, global uncertainty with the United States threatens the dollar.

As a fiat currency, the one thing that makes the nations of the world put their trust in the dollar is their confidence in the strength and leadership of the United States. But today, the world has deep doubts about America’s judgment, economy, and willingness to lead the world and stand up to tyranny.

Let us count just a few of the ways.

Extending the national lockdown for months on end had no meaningful effect in preventing the spread of the CCP virus, but it did lead to a rise in anxiety, suicide, childhood depression, and failing grades.

The lockdown also destroyed 22 percent of all small businesses in the United States, which account for about 70 percent of jobs. Massive unemployment followed as it destroyed the lives and livelihoods of millions of Americans.

That was the Biden administration’s decision.

Then the federal government spent over $5 trillion on pandemic relief, further undermining confidence in the U.S. government to honor its exorbitant new levels of debt.

The Biden administration is responsible for the disastrous exit of U.S. forces in Afghanistan. No external circumstances made that happen the way it did. It was an executive decision that resulted in the loss of confidence in the United States among our allies and a loss of fear of us amongst our adversaries. It also provided $85 billion in arms to our adversaries.

When Joe Biden took office, a gallon of gas cost around $2. The United States is the world’s largest energy producer and exporter. Shutting down domestic oil and natural gas production was one of the first things Biden did as president, costing even more jobs.

Of course, that policy made Europe dependent on Russian energy. Plus, we paid Russia billions of dollars for oil that we stopped producing in the United States. Nationally, gas is now over $5 per gallon and higher in some places.

Gas prices of more than $7.00 per gallon
Gas prices of more than $7.00 per gallon are posted at a downtown Los Angeles gas station in California on March 9, 2022. (Frederic J. Brown/AFP via Getty Images)

This has also caused inflation in fuel, food, and anything else shipped from point A to point B. What’s more, vaccine mandates have cost truckers their jobs and driven labor prices up. It’s no wonder that the economy teeters on recession.

Stagflation is now a high probability.

And then there’s the Biden administration’s China policy, or rather, its China enablement policy. From turning a blind eye to the CCP’s slave labor camps to allowing China to continue to capture critical global lithium supplies, no one but the president’s own party thralls believe that Washington is standing up to China in any meaningful way.

Even Japan felt the need to publicly remind the Biden administration that the United States has a security agreement with the Asia-Pacific democracies.

Let’s do one more just because we can, shall we?

At this very moment, the United States is relying on Russian negotiators—the very same folks who are destroying Ukraine—to negotiate with Iran, Russia’s ally—not ours. All for a mythical “nuclear deal” that is not worth the ink and paper to produce it—at the peril of U.S. interests in the region and Israel.

It used to be that the United States was the bastion of stability and certainty in an uncertain world. In less than 18 months, the Biden administration has undermined the world’s confidence in America, thereby undermining the confidence in the U.S. dollar.

And the blame lies much less with Beijing than it does with Washington.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

James Gorrie


James R. Gorrie is the author of “The China Crisis” (Wiley, 2013) and writes on his blog, TheBananaRepublican.com. He is based in Southern California.

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