ProMechy
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Found an answer on Quora, I thought it may be a good read.
Mainly 2 causes explain this :
The U.S dollar amounts for more than 60% of the foreign currency reserves in the World…
And the U.S Dollar is used for the oil & gas international trade and a wide part of the Global trade, the importance of the Euro being based mainly of the very important intra-European Union trade, which gives it a global weight on the share of Global Payment despite it’s regionality.
That gives the United States “exorbitant [monetary] privileges” (the term has been coined in France, and we also use that concept for the French administration rights against private agents like citizens or companies) to sanction countries whose State or private companies use the dollar in their transactions. This to the point to sanctions its own allies, like… France in 2015, the BNP using the dollars for “unhallowed” operations in the U.S deemed “rogue States”.
Even better, the U.S.A refuse to convert the U.S dollars owned by other countries into Gold since the mid-70s. Result : it’s worth nothing else… than itself, and yes, who can print U.S Dollars without asking the permission to anybody, mmmhh ? Basically, the U.S.A can print what they owe you, but you can’t do that when you owe to the U.S.A.
The U.S Army & alliances
This dual exorbitant privilege is backed by the most powerful army in the World, and enforced also by the U.S.A alliance with the NATO countries member of the E.U, whose collective security relies hugely on NATO, hence the U.S Army, and the other U.S allies in the World.
The interaction between the U.S monetary policy and the U.S led military block
For a “Rule” to be enforced, 3 parameters are needed :
In such respect, the U.S.A are the only Sovereign State in the World that can unilaterally enforce a supranational “Rule” beyond its own Sovereign borders, China still being far from that magnitude of Power due to their soft-power approach (global trade, governments pocketing).
And if countries like China & Russia can very well resist it, most of their trade partners cannot, and hence even these 2 countries are partly affected by this U.S “Rule” over a large part of the World, even if Russia got recently rid of 90% of its stock of dollars (100 billions, approx.).
Hence, these “exorbitant privileges” based on the U.S Dollar or the U.S Army & Alliances and related diplomacies are not really challenged, despite the Euro strength and the existence of other second grade reserve currencies like the Japanese Yen, the Sterling Pound ; or despite the strength of the Chinese & Russian armies, for none of these are the components of a long term comprehensive policy led hegemonically since the end of WW2 like the U.S foreign policy is.
Only the U.S can afford to support a Worldwide foreign reserve currency
China and the E.U can’t yet afford the coast of such a policy, Japan and the U.K cannot anymore (even to a moderate level), Russia and India likely never will, except if these 2 countries ever decided to create a monetary block with China : a currently unlikely process, due to their countries “cautious relationships” and their respective attachment to their sovereignty.
On the other hand, the price of the U.S.Dollar being the major international currency is a hefty counterpart to its numerous benefits in term of Worldwide influence and predominance : a huge trade-deficit for the U.S.A that even China, the sole U.S real contender, cannot afford because its growth is based and hence very much reliant on a massive trade-excedent mainly with the U.S and its European allies, who use it as their factory. Without that, China (and the U.S / E.U) would have to reconfigure vastly their economies and trade network. And nor the Western Elites (who spend their time to complain about it, and yet pursue willingly this policy out of white-collar greed), neither the Chinese Communist Party wish that to happen.
Additionally, China trusted for a long time the Dollar as the main currency inside its own coffers. China holds tremendous foreign currencies reserves (approx 2,000 billions of U.S.D[1] over 3,000 billions total worth[2] ), as Joseph Boyle remarks in comments led me to inquire about :
The exact composition of the foreign-exchange reserves of China is a state secret. Foreign analysts agree that about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars, approximately one-fifth in Euros, and almost all the rest in Japanese Yen and British pounds.
China is now more and more willing to get rid of them due to the U.S-China trade war, of which the Huawei crisis is the most popular episode, which showed the untrustability of the U.S.A to be the main banker of the World, this without going too fast to not make the U.S.D dollar depreciate and hence China’s saving melt like snow under sun.
The Euro case : the Eurozone is too weak to really matter as of now
For the Euro, second major reserve currency far behind the U.S Dollar, even if there was a political will, Germany (the leading Power of the Eurozone) is not big enough to support such a reserve currency policy for the sluggish Eurozone with its own dynamism… which is partly build on impairing its European partners with a very strong currency that only the German prime exports can endure in extra-European trade, while Germany is already dominant in the intra-European trade.
The U.S sanctions & fines : some perks for an useful but costly policy
The U.S trade deficit and its cost for the U.S economy also explains why the U.S are compelled to sanction harshly the countries using the dollar : that U.S policy is costly, so it must bring some perks :
Mainly 2 causes explain this :
- The U.S Dollar used as the main foreign reserve currency by most of the countries in the World, and as a major international trade currency (especially for oil, which is still needed by every country for its functioning and development) in the post-WW2 order, perpetuated after the end of the Cold-War.
- The “almost unchallengeable” (Kudos, Vietnamese) U.S army, it’s NATO extension, and this lot Worldwide coverage through a network of bilateral & regional alliances that basically put everyone on “friendly” or “hostile” pressure to comply, its NATO component being activated after the Cold-War in Yugoslavia & then the Middle-East to justify its existence and favor American policies in the World (and Americano-German policies in Europe, this last country became the U.S beach-head in Europe due to the American military over-lordship over it since WW2).
The U.S dollar amounts for more than 60% of the foreign currency reserves in the World…
And the U.S Dollar is used for the oil & gas international trade and a wide part of the Global trade, the importance of the Euro being based mainly of the very important intra-European Union trade, which gives it a global weight on the share of Global Payment despite it’s regionality.
That gives the United States “exorbitant [monetary] privileges” (the term has been coined in France, and we also use that concept for the French administration rights against private agents like citizens or companies) to sanction countries whose State or private companies use the dollar in their transactions. This to the point to sanctions its own allies, like… France in 2015, the BNP using the dollars for “unhallowed” operations in the U.S deemed “rogue States”.
Even better, the U.S.A refuse to convert the U.S dollars owned by other countries into Gold since the mid-70s. Result : it’s worth nothing else… than itself, and yes, who can print U.S Dollars without asking the permission to anybody, mmmhh ? Basically, the U.S.A can print what they owe you, but you can’t do that when you owe to the U.S.A.
The U.S Army & alliances
This dual exorbitant privilege is backed by the most powerful army in the World, and enforced also by the U.S.A alliance with the NATO countries member of the E.U, whose collective security relies hugely on NATO, hence the U.S Army, and the other U.S allies in the World.
The interaction between the U.S monetary policy and the U.S led military block
For a “Rule” to be enforced, 3 parameters are needed :
- Some “Laws” to be applied (the U.S regulations over the dollar and beyond, its allies compliance & “harmonized” regulations)
- A “Police” to enforce them (the U.S & allies monetary, financial, economical entities, ultimately the U.S Army and its allies)
- A “covered territory” subjected to these Laws and in reach of that police : economically, diplomatically, or in a military manner (the countries who use the dollar, and indirectly even the Superpowers who use it or trade with smaller countries who use it : almost the whole planet).
In such respect, the U.S.A are the only Sovereign State in the World that can unilaterally enforce a supranational “Rule” beyond its own Sovereign borders, China still being far from that magnitude of Power due to their soft-power approach (global trade, governments pocketing).
And if countries like China & Russia can very well resist it, most of their trade partners cannot, and hence even these 2 countries are partly affected by this U.S “Rule” over a large part of the World, even if Russia got recently rid of 90% of its stock of dollars (100 billions, approx.).
Hence, these “exorbitant privileges” based on the U.S Dollar or the U.S Army & Alliances and related diplomacies are not really challenged, despite the Euro strength and the existence of other second grade reserve currencies like the Japanese Yen, the Sterling Pound ; or despite the strength of the Chinese & Russian armies, for none of these are the components of a long term comprehensive policy led hegemonically since the end of WW2 like the U.S foreign policy is.
Only the U.S can afford to support a Worldwide foreign reserve currency
China and the E.U can’t yet afford the coast of such a policy, Japan and the U.K cannot anymore (even to a moderate level), Russia and India likely never will, except if these 2 countries ever decided to create a monetary block with China : a currently unlikely process, due to their countries “cautious relationships” and their respective attachment to their sovereignty.
On the other hand, the price of the U.S.Dollar being the major international currency is a hefty counterpart to its numerous benefits in term of Worldwide influence and predominance : a huge trade-deficit for the U.S.A that even China, the sole U.S real contender, cannot afford because its growth is based and hence very much reliant on a massive trade-excedent mainly with the U.S and its European allies, who use it as their factory. Without that, China (and the U.S / E.U) would have to reconfigure vastly their economies and trade network. And nor the Western Elites (who spend their time to complain about it, and yet pursue willingly this policy out of white-collar greed), neither the Chinese Communist Party wish that to happen.
Additionally, China trusted for a long time the Dollar as the main currency inside its own coffers. China holds tremendous foreign currencies reserves (approx 2,000 billions of U.S.D[1] over 3,000 billions total worth[2] ), as Joseph Boyle remarks in comments led me to inquire about :
The exact composition of the foreign-exchange reserves of China is a state secret. Foreign analysts agree that about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars, approximately one-fifth in Euros, and almost all the rest in Japanese Yen and British pounds.
China is now more and more willing to get rid of them due to the U.S-China trade war, of which the Huawei crisis is the most popular episode, which showed the untrustability of the U.S.A to be the main banker of the World, this without going too fast to not make the U.S.D dollar depreciate and hence China’s saving melt like snow under sun.
The Euro case : the Eurozone is too weak to really matter as of now
For the Euro, second major reserve currency far behind the U.S Dollar, even if there was a political will, Germany (the leading Power of the Eurozone) is not big enough to support such a reserve currency policy for the sluggish Eurozone with its own dynamism… which is partly build on impairing its European partners with a very strong currency that only the German prime exports can endure in extra-European trade, while Germany is already dominant in the intra-European trade.
The U.S sanctions & fines : some perks for an useful but costly policy
The U.S trade deficit and its cost for the U.S economy also explains why the U.S are compelled to sanction harshly the countries using the dollar : that U.S policy is costly, so it must bring some perks :
- political influence and direction over the global trade :
- to decide who is allowed to buy what to whom and in which situation
- to sanctions these who bypass it so they don’t “do that” again
- to redirect sometimes the other countries purchases toward the U.S (example, arms-sales related interdiction & sanctions).
- some easy “cash-back” : hefty fines unilaterally delivered to these who use the Dollar without respecting the rules established by Washington.
- These sanctions are helping the catastrophic budget of the U.S.A who dearly lacks of hard-currency (one shall wonder if the dollar is still one nowadays) : each multi-billion “equivalent USD” inflow coming from abroad is a breath of oxygen for the U.S federal government.
- If I wanted to be mean, I’d say : “See, the U.S.A don’t only print money, they earn also… racket is a job like another, and they are the best at it…”
