A billion years before the collapse of the dollar – Newspaper Kommersant No. 194 (7395) of 10/19/2022

Even in the most severe scenarios for the United States of the reaction of the governments of the largest countries of the world to the threat of loss of reserves created by the arrest of the Bank of Russia’s reserves in March 2022, the dollar retains the status of the world’s main reserve currency in the medium term. This is the main conclusion of a recent article by Colin Weiss, Senior Economist at the Federal Reserve System (Fed), who draws attention to the “military” component of this problem: the status of the dollar is largely provided by military blocs with the participation of the United States and this largely stabilizes the situation.

Colin Weiss has been a senior Fed economist since 2020 and a member of the Fed’s Board of Governors, and previously an academic economic historian. In the article “Geopolitics and the Future of the US Dollar as a Reserve Currency”, Weiss formally acts as an economist – this is a scientific publication in a series of discussion papers of the American central bank. However, one way or another, his article also demonstrates the logic of at least one of the representatives of the US Federal Reserve Board of Governors in an issue that is considered one of the main “geopolitical” issues in the world: Weiss directly discusses how events are possible from the point of view of economic science, in a popular and conspiracy theory known as the “collapse of the dollar”. The reason for the study was publications about the possible reaction of the governments of a number of countries around the world to the freezing in March 2022 of part of the international reserves of the Russian Federation under the management of the Bank of Russia.

Weiss considers a group of scenarios in which regulators can withdraw reserves (a total of $ 5.24 trillion at the end of 2022, the economist emphasizes that this is about 75% of the dollar reserves recorded by the IMF surveys – COFER) from assets denominated in US dollars (mainly US Treasuries), in the medium term. There is a certain subtlety in the status of Weiss’s publication: he directly refers to “confidential” information about the state of such reserves, which, apparently, is available to him by virtue of his official position (and this data, of course, is not disclosed in the publication), which allows him to do sufficiently accurate conclusions about the real state of affairs in this area. Because of this, an exact verification of his assumptions is apparently impossible – however, it is obvious from the text that “confidential” data in themselves do not make a decisive contribution to Weiss’s conclusions.

The economist states that the analysis of the previous behavior of the governments of the countries of the world in situations similar to the current problems of the FRS (including the situation with the reserves of Germany with the participation of the United States in the Vietnam War) shows that there is no real threat to the US dollar as a reserve currency – and the alleged reducing the volume of reserves in it will change little in the current status of the dollar. Moreover, Weiss also considers the issue of extreme shocks to the status of the dollar – for example, the simultaneous withdrawal of Saudi Arabia (whose currency, the rial, is pegged to the US) and India from reserving their liabilities in dollars by central banks, switching to the Chinese yuan and the chain transition of smaller countries to reduction and diversification of dollar reserves – in euro and yuan. Colin Weiss draws attention to a rarely analyzed factor – the relationship between the dollar reserve policy of central banks and the participation of countries in military alliances with the United States. Here, the economist’s conclusions sound very harsh – de facto, he states that the status of the US dollar is largely stabilized precisely by the military pacts of the United States (NATO, ANZUS, the Rio Pact in Latin America, bilateral agreements with Japan, South Korea and the Philippines) and their military power, which, at least in the medium term, depends little on the status of the dollar as a reserve currency. At the same time, some countries without formal military ties to the United States – India, Hong Kong, Vietnam, Indonesia, Saudi Arabia, the United Arab Emirates and Mexico – are important for the dollar’s prospects, but their decisions will not radically change the situation even if they take clearly disadvantageous “geopolitically” motivated steps – Weiss quite convincingly shows that at least such a “collapse of the dollar” scenario is untenable and fantastic.

Dmitry Butrin