welcome friends this is richard wolff
from democracy at work responding to
another ask prof wolf question from our
patreon community
and this question comes from marcus
allen
marcus asks about
dollars the petro dollar the role of
dollars in the world economy
and the big question on the world's mind
these days
is the chinese yuan
going to overtake the dollar in the
world economy its role
and if so when and how and with what
consequences
might this happen
so let me begin this with a couple of
definitions so we're all on the same
page
the petrodollar
is named that way
because for many many years now the
global trade in oil
is undertaken
with dollars
country a buys oil from country b and
usually pays for it in dollars
it was a sign that all of the important
trade in oil that literally is what
energizes many economies around the
world
to be reliable to be sure that when you
got paid you could rely on the payment
what people who sold oil wanted and what
people who bought oil had to do was
provide a globally reliable currency
and the dollar was that
coming out of world war ii the dominance
of the american economy
in the world system was overwhelming
the only potential competitors
britain
germany
russia
japan had all been decimated by world
war ii they literally destroyed each
other leaving the united states on whose
soil no war was fought accepting pearl
harbor
uh in a position of total dominance and
the dollar which had been moving in that
direction became officially the world's
number one currency
and this has had and continues to have
enormous benefits for the american
economy here's a way to understand that
if foreigners hold dollars because
they're going to be buying something
tomorrow or next week or next month and
dollars is the way you pay for it oil or
many other things
then we have a peculiar arrangement the
united states sends dollars abroad
little green pieces of paper that you're
all familiar with that cost virtually
nothing to make in order to buy wine
from france rubber from malaysia you
name it we get really wealthy as a
nation and we only have to give pieces
of cheap paper in exchange
if people hold dollars this is an
enormous subsidy to the united states
likewise if banks around the world and
countries around the world hold dollars
as reserves to show that they're in good
shape it's one thing to have the
currency of your own country
that depends on how strong the economy
of your country is it's another thing to
have reserves in dollars which everybody
respected and that means banks whole
dollar denominations
banks also and countries will take the
dollars and hold on to them in the but
they want to earn something because if
you hold a dollar you don't earn
anything so what they do is they lend it
to the united states government
they pick up the interest that the
government pays they still have assets
in dollars because it's a u.s
government debt
and that of course provides an enormous
help to the american government because
it can do all kinds of things with money
it borrows not from its own citizens but
from banks governments citizens abroad
many of the wars of the united states
have been financed by loans from other
countries
the rise of china is absolutely crucial
now it is the second economy in the
world
it's roughly two-thirds the size of the
united states economy and gaining fast
it has been growing faster than the
united states for the last 25 years two
to three times faster every year
that's why it is as big as it is now and
that's why most predictions have it be a
bigger economy
at the end of this decade than the
united states and what that means is
that all over the world
citizens who are planning to do all
kinds of growth and expansion and trade
now need to have yuan
in their wallets yuan in their bank
accounts because more and more countries
are saying we want to be paid in that
currency because we do more business
with china than we do with the united
states and therefore at the very least
we want to reduce the old use of the
dollar which was virtually total
and now maybe 50 50 you want you they're
adjusting
banks are doing the same with their
reserves
countries are doing the same with what
the reserve is to back up their currency
people will have confidence in their
currency not now only because they also
have dollars but because they also have
yuan and with the prospect of the yuan
becoming a bigger
factor connected to the biggest economy
in the world within a few years the
pressure is on no one knows how fast it
will go
it will diminish the subsidy we get as a
nation it will squeeze american
capitalism it will be a boon to the
chinese capitalism in just the ways the
dollar supremacy was for the united
states and one important point
the sanctions imposed on russia
are speeding up
the importance of the yuan
because the russians with their alliance
on the chinese
are doing more and more trade
with the yuan because they are shut out
of the united states in an ironic twist
american sanctions are undermining the
future of the american economy in this
among other ways
be careful about your own investments
for those of you who have any
because the dollar isn't what it was
and it's part of the relative decline of
the american capitalist system relative
to where capitalism has moved its
dynamic growth center
and that is to the east
if discussions like this are of interest
please know
that we at democracy at work want you to
please partner with us share this video
with friends relatives neighbors
co-workers
that's a way to extend our reach to get
more people to understand and think
about the great issues of our time that
you in our patreon community bring to us
to work on it's a way of our working
together that we need and that completes
our project and of course if along the
way you can also provide us with some
financial support
our website democracy at work dot info
will tell you all about how to do that
thank you