Treasury Secretary Yellen Still Believes in the Power of the Once Golden Eggs

Dedollarization is proceeding apace but the dollar’s monopoly on the notion of relative value is still intact. Historical trends don’t disappear just because bad habits tend to be ingrained. But they take time to play out and sometimes produce chaos.

Treasury Secretary Janet Yellen © Jason Howerton /

June 20, 2023 22:39 EDT

In a recent Markets Insider article highlighting the “gradual decline in the dollar’s share of global reserves,” journalist Filip De Mott cites the observable trend towards dedollarization in the global economy. The lede contains three succinct statements:

  • “Treasury Secretary Janet Yellen said to expect a gradual decline in the dollar’s share of global reserves.
  • Her comments were in response to de-dollarization questions during a congressional hearing.
  • She also said the dollar will remain dominant as most countries have no alternative.”

Today’s Weekly Devil’s Dictionary definition:

No alternative:

A state of affairs that applies to a situation of monopoly, encouraging abusive behavior so long as the condition is permitted to exist.

Contextual note

One credible narrative concerning US foreign policy over the past three quarters of a century might read like this. A powerful nation that participated in a conflict in Europe it had no interest in initiating was surprised to discover that, when the fighting stopped, it serendipitously found itself in the position of single-handedly managing a diversity of former colonies scattered across the full extent of the globe. Because it had the resources to consolidate its management role, it followed the logic of its own capitalist ideology and sought to optimize its status as a monopoly.

The European empires were in tatters. Every stretch of land the British, French, Dutch, Italians and Germans had conquered was becoming available for exploitation. The task of franchising these separate economies became the key to defining a new “normalized” world order. 

Normalization simply required a global military presence that could securitize a monopolistic system. The US confronted a much weaker rival, the USSR, that represented an opposing ideology. It was theoretically capable of threatening the new monopoly. The perception of the threat actually served to reinforce the monopoly by justifying an extraordinary and expensive effort of securitization. In 1961 US President Dwight D Eisenhower gave that system of securitization a name: “the military-industrial complex” (MIC). The economy and the system that securitized it had become a single, unified political and economic entity.

By 1991, the monopoly achieved total domination after the collapse of the weak rival. There had never been a challenge to the dollar, but the challenge of a counter-balancing political influence was now definitively removed. Some people speculated that history itself had reached its endpoint. What had formerly been referred to as the Washington Consensus was renamed in popular parlance “the international rules-based order.”’

But history hadn’t ended. In the past decade, after a financial crisis that caused a lot of the rules to be severely bent, the rules-based order has become increasingly fragile.

The largely symbolic but nevertheless real event that has now insinuated itself in the headlines is called dedollarization. In the old rules, the dollar was the lubricant of the global economy. Without it, all the gears would grind to a halt. 

The dollar achieved its dominant status in 1944 because its declared value was linked to gold. Everyone believed in gold, so everyone could believe in the dollar. But then, suddenly,  in 1971, it was no longer decoupled from gold. Trust in it depended entirely on the credibility and relative stability of the existing and reigning US monopoly, which was now founded simply on the omnipresence of the dollar. Buying and selling across anyone’s borders took place in dollars. Everyone was, de facto, a loyal customer of the monopoly.

It’s no secret that the monopoly is now being actively contested. Yellen nevertheless reassuringly noted that the dollar’s strength will not diminish because there is “no alternative” to the monopoly. And she’s right. Nations that trade in other currencies to avoid transacting in dollars will still measure value in dollars.

For the moment, Yellen’s only slightly pessimistic description of the struggle against the monopoly is accurate. “The US should expect the dollar’s share of global reserves to slowly decline, but no alternatives exist that could completely displace the greenback.” So long as no universal alternatives exist, the monopoly is safe.

Dedollarization is a gradual process, which means that in good hands it can be intelligently managed. A far more difficult taks is managing the culture of monopoly. People who are convinced that the monopolistic position is the ideal and who have enjoyed that position in the past are rarely inclined to relinquish its advantages by managing a transition. They prefer resisting change, which appears as a loss of power.

The dedollarization trend began some time ago but is undergoing a rapid acceleration. The article quotes the assessment of Eurizon SLJ Asset Management. “The US dollar’s reserve status has seen gradual erosion for two decades, and it saw a steep decline in 2022 even though its strength in international trade remains unchallenged.” It’s this “steep decline” that explains why Yellen must reassure the public.

Any inquiring journalist, though not the author of Insider‘s article, should ask this question: what explains the steep decline in 2022? Is it just another quirk of the marketplace? Or could it have geopolitical significance? Might it be related to US policies with regard to Russia or how, as a monopoly, it seeks to manage the global economy? Neither the article’s author nor Yellen appear to be interested in this question. Possibly because they know the answer.

Instead Yellen cites “a natural desire to diversify” on the part of unnamed countries in different parts of the world. Could there not have also been a somewhat unnatural cause that provoked the stated “natural desire?” Today’s journalism shies away from any form of historical analysis. It prefers calling major historical events “unprovoked.” We live in a world where we’re expected to believe “shit just happens.”

The article does tells us this: “Other reports have pointed toward an upsurge in foreign central banks’ demand for gold as another way to reduce their reliance on dollar reserves.” 

Does anyone remember that the dollar’s legitimacy was once based on gold? Is history trying to remind us of something we are seeking to forget?

Yellen explains what it means to have no alternative. “I would say there is virtually no meaningful workaround for most countries for using the dollar as a reserve currency.”

“No alternative” and “no workaround” both describe a situation of intentional, provoked captivity. It’s the law and modus operandi of monopoly. Yellen explains that “we have deep liquid open financial markets, strong rule of law and an absence of capital controls that no country is able to replicate. It will not be easy for any country to devise a way to get around the dollar.”

It won’t be easy, but now that the very idea of the “rule of law” appears to be crumbling even within US culture, those wishing to end the monopoly may be focusing on replacement rather than replication.

Historical note

In 1964, French President Charles De Gaulle’s finance minister, Valéry Giscard d’Estaing, coined the expression “exorbitant privilege” to describe the role of the dollar in the global post-war economy. He knew that the US is the only country that can never suffer from a balance of payments crisis because it pays for its imports with its own money.

Nations that export to the US, instead of seeing their own wealth increase, expand the wealth and influence of the US. It’s what the French call “avoir le beurre et l’argent du beurre:” to have the butter and the money to pay for the butter. In English we say “have your cake and eat it.”  Butter, as the French know, is a better lubricant than cake. The dollar was the oil that greased the gears of the global monopoly.

As Michael Hudson explained in detail in his 1971 book, Super Imperialism, the automatic expansion of credit due to the dollar’s role as the world’s reserve currency enabled the US to profligately print the money needed to deploy its military across the globe. Eisenhower’s MIC ended up defining the core of the US economy: militarism abroad and consumerism at home fueled an endless stream of monopolistic rent.

The US owned the proverbial goose that lays the golden eggs. Ironically those eggs, at least theoretically,  were pure gold until De Gaulle began calling for the gold they represented. This prompted US President Richard Nixon to decouple the dollar from gold. 

But thanks to global inertia and the clever institution of the petrodollar, the eggs – that hatched in the form of America’s global monopoly –were still there even after the gold was gone.

The remaining question is, who is egging on those who want to dump the dollar? And can they succeed?

*[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Read more of Fair Observer Devil’s Dictionary.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.


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