The dollar is the main advantage of the United States. Not at all because they can print it as much as they want. The reason is different. The dollar is the international reserve currency. This means that when the US sells exports or buys imports, all mutual settlements are made in dollars. He accepts investments in dollars and sells debt for dollars.
In fact, the dollar got this position for a reason, but having a rather long history of evolution. gold was the main and main monetary asset. Despite the fact that paper money was used in mutual settlements.
they were all rigidly tied to gold. The dollar was used for internal settlements, and for external only gold. Absolutely every issued banknote was guaranteed by a certain amount of gold .This rule was carried out so implicitly that this financial system in history was called the gold standard system.
During the gold standard, powerful countries came to understand that since no one can “print” gold on their own, it can be accumulated through trade. It is elementary simple: so that the inflow of gold into the country is greater than the outflow. Sell more exports and buy less imports. The UK has been using this policy for a long time.
Subsequently, having surpluses and surpluses of gold, developed countries tried to maximize profits (and the amount of gold) by issuing loans to poor countries. The main feature of these loans was that they were used for infrastructure projects, which would give access to different regions, increase trade and trade surpluses.
The British, for example, actively built railways, ports in India. In addition to the fact that loans were used in their own interests, they were also a political tool of influence. With these loans, most often when poor countries needed to repay them.
This behavior of developed countries was called Gunboat Diplomacy. When Pompeo said that China was using debt-trap diplomacy, it was essentially the same modern version of gunboat diplomacy.
The Americans came to this understanding later than the Europeans and learned their lesson after they saw how the Europeans unceremoniously open the markets of Latin America with the help of such loans. Moreover.
when the debtors could not repay the debt, then with the help of gunboats they knocked them out by force! This observation led to the emergence of the concept of “dollar diplomacy”, which was coined by William Taft and became the defining basis of future US policy.
Over time, the gold standard began to burst at the seams. The problem first surfaced in the US during the Great Depression. Then the frightened Americans began to massively withdraw deposits from banks. At the same time, they withdrew these deposits not in dollars.
They demanded gold. The situation was becoming critical. Therefore, the government, in order to prevent the collapse of the banking system, imposed a ban on the issuance of deposits. A few days after the ban, Franklin Roosevelt passed another law, according to which all gold was forcibly withdrawn from the population and exchanged for a dollar.
which was immediately devalued twice. In general, the government prohibited the public from owning gold until 1975. What does it mean to take gold from Americans during the gold standard? This is the same as withdrawing all foreign currency from Ukrainians now and forcing them to own the hryvnia, which is immediately devalued. How are you?
It is this period that can be called the period of the beginning of the replacement of the dollar for gold. Despite the fact that this experiment was successfully carried out on its own citizens, you cannot perform this trick with other countries. The problem was that then, besides gold, the main currency of international settlements was the British pound and it was not possible to convince them to use the dollar.
By coincidence, the problem resolved itself. Europe, sitting on a powder keg, suddenly exploded. The war has engulfed the entire continent. The need to finance military spending forced the Europeans to seek help. The Americans readily agreed. Until the end of the war, the Americans became the largest creditor in Western Europe.
After the end of the war, when the victorious countries sat down at the negotiating table, America was in the strongest position and could afford to dictate terms favorable to her. Thus, during the Bretton Woods Conference, the financial system of the pre-existing gold standard was changed to the gold exchange standard.
According to the gold exchange standard, the dollar became pegged to gold at the rate of 1 ounce to 35 dollars, and other currencies were pegged to the dollar. In fact, the dollar became a currency equivalent to gold, and over time, in fact, replaced gold.
What did the transition to the dollar mean in essence? All loans, international trade can be freely carried out in the dollar. This was a historic step in the further evolution of dollar diplomacy.
If we draw an analogy with gold, then America has actually become the owner of bottomless gold mines! Can a gold mine owner be poor? Especially if that gold is money? After all, if he runs out of money, then he just can get more gold!
