How does the dollar work?
In the United States, government spending exceeds revenues, creating a fiscal deficit; internationally, the United States imports more goods than exports, creating a trade deficit.
How does the United States pay for both deficits? Borrow money.
Many countries are also borrowing money, but to a certain extent they face a crisis when they can no longer borrow money. Greece in 2010 was like that, which had to cut spending sharply in order to be able to continue to receive money from overseas. As a result, the living standards of Greek citizens have fallen sharply, and even the pensions of the elderly cannot be paid.
However, the United States can cover the fiscal deficit by printing dollars and pay for excess spending.
The United States issues almost a piece of paper at zero cost, while the rest of the world earns dollars from hard work.
Emerging countries must strive to produce low-cost products, which are then exported around the world in exchange for dollars, which are then exchanged for national currencies to pay workers and raw material suppliers.
Emerging countries have accumulated a lot of dollars, how to use these hard-won dollars?
They took out many of them to buy U.S. Treasuries, and the dollars flowed back to the United States. The United States then uses these dollars from emerging countries to pay for excess government spending.
When the U.S. government can't make up the deficit, it prints money and then buys goods, and the emerging countries buy U.S. debt, and the dollar flows back to the United States.
"Trust" is the basis for the operation of the dollar
Why would the rest of the world buy these "papers"?
The reason is that the vast majority of world trade transactions are settled in dollars, which act as the world's reserve currency.
All U.S. economists know that the dollar, as the global reserve currency, has brought enormous benefits to the American people, who can "afford a standard of living far beyond their income" and "make up for huge fiscal deficits that they would not be able to afford without this privilege."
The United States is an unrivaled financial superpower, and this status is based on the world's trust in the dollar, of course, sometimes the United States will use military force from time to time to strengthen this "trust.".
This "trust" is a key pillar in sustaining the dollar as a global reserve currency.
The beginning of the collapse of the dollar "trust"
That trust has been shaken over the past decade, as the United States has often used the dollar as a weapon against other countries.
In July 2015, Iran reached a nuclear deal with the Un-Permanent Standing Committee and Germany, supported by UN Security Council Resolution 2231.
When the United Nations Security Council approves an agreement, it becomes a binding agreement that all countries of the world must abide by.
In May 2018, the Trump administration withdrew from the JCPOA, while announcing that it would sanction all countries that continue to trade with Iran based on the agreement.
Trump's sanctions are: sanctions for their use of dollars in cross-border payments.
This has put the countries involved in the Iranian nuclear system in a legal dilemma. Under international law, companies in these countries are allowed to trade with Iran. However, if dollars are used for trading in trade, then these companies will have to be fined hefty in U.S. court.
In order to get rid of the sanctions, Britain, France and Germany set up a "trade swap support tool" (INSTEX mechanism), which is a fund trading system that does not use the US dollar.
The instex mechanism involves a small proportion of the total size of trade in the world, but the INSTEX mechanism symbolizes a great transformation of the international system.
For the first time ever, america's three main allies (Britain, France, and Germany) put aside the dollar payment system and created an alternative payment instrument.
Using the dollar to extract a small amount of benefits from the small country of Iran has endangered one of the largest global strategic assets of the United States (the dollar), and the Americans have picked up sesame seeds and lost watermelons.
The United States uses the dollar as a weapon, while frantically printing money, abusing the dominance of the dollar, and stimulating other countries to take "de-dollarization" actions more quickly. ”
Now more and more countries firmly believe that only de-dollarization can truly free themselves from bondage and exploitation.
At present, 53 countries have joined the "de-dollarization", more than a quarter of the world's countries.
Russia and Iran have connected their currency trading systems to settle directly in their own currencies; several oil powers, including Saudi Arabia and the United Arab Emirates, have announced that they will abandon a portion of dollar settlement in oil trade.
Countries around the world have been pushing to replace or weaken the role of the US dollar with national digital currencies or cryptocurrencies backed by gold, oil and others.
The more cracks a dam grows, the closer the moment the dam collapses.