Will vast global debt lead to war? Time will tell!
As the global reserve currency, the United States dollar and associated agencies are in a win-win situation. The US offers it currency to the world, and in return the world — not the US — pays the costs of the dollar. The US produces the dollar, and the rest of the world consumes it by trading scarce resources for that dollar. In possessing the world reserve currency, the US has the advantage over countries that rely on the dollar for trade and industry.
In the Virgin Islands
When the Virgin Islands borrows cash from a US bank — whether the borrower is the government, a business or an individual — that loan is in dollars. The costs of the transaction, in addition to interest rates, are borne by the VI. The US is able to transfer the costs and liabilities down the pyramid. The relationship between the US Federal Reserve, which produces the dollar, and the rest of the world is based on power.
All transactions big and small within the borders of the VI — like all trade between the VI and foreign countries — are in dollars. Essentially, this arrangement makes the VI a dollar vassal. In reality, apart from administrative and geographic differences, the dollar makes this territory and the US Virgin Islands one economic jurisdiction, with the US mainland the senior economic partner.
US ‘vassals’
The VI is not alone in this. All countries that adopt the dollar, or whose currencies peg to the value of the dollar, are essentially vassals of the US. This is hegemonic power. And that power is increasing.
US super corporations are the largest businesses on earth, with stock market values surpassing the gross domestic product of most countries. The top 10 businesses on earth in terms of market value are US corporations. Apple, for example, is valued at about $3.4 trillion — around the same as the United Kingdom’s GDP. The US hegemony has been driven by dollar dominance, trust and confidence of investors, technology, and the institutional power of US federal agencies.
Dollar as a weapon
As the producer of the dollar, the US ensures a foreign country uses the dollar according to its own purposes. This is a huge privilege. It will ensure the US strategic interest is supreme in the use of its currency. The US holds all the cards. That is why the US can use the dollar as a weapon. Countries that refuse to act according to the dictates of the US can find themselves penalised and sanctioned, with the privileges of the dollar withdrawn.
In some instances, the US seizes the dollar and related instruments of other countries. That fear of the power of the dollar is a reason that BRICS nations are searching for an alternative currency infrastructure.
Today, the world is a US bazaar. Traders in that market pay a levy of some type to the US for trading in that bazaar. The US owns the infrastructure and payments system.