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The dollar down the pan monetary chaos to follow

Marxist Analysis · 2026-05-13

Core Argument

The article argues that the decline of the US dollar represents not merely a cyclical currency fluctuation but a structural shift in the global capitalist order, comparable to the breakdown of the Bretton Woods system and the interwar collapse of the 1930s. The central claim is that the United States can no longer sustain its "exorbitant privilege" of financing chronic deficits by printing the world's reserve currency, and that the resulting monetary instability will intensify inter-imperialist rivalry, competitive devaluations, and ultimately a crisis of global economic governance. The dollar's slide is presented as both symptom and accelerator of a deeper shift in the balance of economic power from the West to emerging state-capitalist powers, particularly China and the oil-exporting nations.

Theoretical Grounding

The analysis draws on the Marxist theory of capitalist crisis as rooted in the contradictions of the world market, rather than in subjective policy errors. It deploys a classical Marxist understanding of money as a social relation that mediates the anarchy of capitalist production, and it traces the instability of fiat currencies under floating exchange rates to the underlying imbalances in production and trade between nations. The article is situated within the Marxist tradition that analyses imperialism as a system of rival nation-states competing for markets, investment outlets, and spheres of influence — a tradition extending from Lenin's Imperialism, the Highest Stage of Capitalism through to contemporary Marxist political economy. It also engages with the work of Charles Kindleberger, a liberal economic historian, but uses his concept of hegemonic stability to argue the opposite: that the absence of a single dominant capitalist power capable of imposing order leads not to cooperation but to intensified conflict and crisis. The theoretical framework is thus one of inter-imperialist rivalry, where monetary relations are the expression of underlying shifts in productive power and class struggle.

Conjunctural Relevance

The article was written in May 2008, at the height of the global financial crisis that began with the US sub-prime mortgage collapse. It connects the dollar's decline — then at 52% against a trade-weighted basket since 1985 — directly to the US current account deficit of 6% of national income and the Federal Reserve's interest rate cuts aimed at staving off recession. The article identifies the growing role of sovereign wealth funds (SWFs), then holding $3.3 trillion collectively and projected to reach $10 trillion by 2015, as the "most visible manifestation of a shift of economic power from West to East." It specifically names China's $1.5 trillion in foreign reserves as the key factor propping up the dollar, and poses the question of how long China will continue lending the US the money to buy Chinese exports. The conjuncture is one of a banking crisis, a looming recession, and the beginnings of a geopolitical realignment that would accelerate in the following decade — including the rise of Russia's SWF as a tool of state power and the emergence of currency diversification away from the dollar.

Where the Argument Continues

The article leaves several threads underdeveloped. First, it does not fully theorise the relationship between the dollar's decline and the tendency of the rate of profit to fall, which would require a more systematic treatment of the US economy's underlying productive base. Second, the analysis of sovereign wealth funds as "loose ballast" is suggestive but does not explore the class character of these state-capitalist entities or their relationship to domestic class struggles in countries like China and Russia. Third, the article does not address the possibility of a new international monetary order — whether through a return to gold, a basket of currencies, or some form of managed system — and the political conditions that would make such an order possible. The argument continues in other IDOM articles from the same period, particularly Mick Brooks's "1929: Can it happen again?" and "US slides into recession — who's next?", as well as Michael Roberts's "Capitalism beared", which provide a more detailed treatment of the crisis tendencies within the US economy. For the broader Marxist tradition, the argument connects to Lenin's Imperialism, Bukharin's Imperialism and World Economy, and more recent work by Marxist economists on the dollar's role as a world currency and the limits of US hegemony.

Connections

  • Lenin, V.I. — Imperialism, the Highest Stage of Capitalism: The foundational text on inter-imperialist rivalry and the export of capital, which provides the theoretical basis for understanding the rivalry between the US and rising capitalist powers.
  • Bukharin, N.I. — Imperialism and World Economy: Extends Lenin's analysis to the world market and the tendency toward state-capitalist competition.
  • Kindleberger, Charles — The World in Depression, 1929-39: The liberal source the article uses to argue that the absence of a hegemonic power leads to crisis, though Marxists would critique Kindleberger's framework for ignoring class struggle and the internal contradictions of capitalism.
  • Roberts, Michael — "Capitalism beared" (IDOM, March 2008): A companion piece that analyses the crisis from the perspective of the tendency of the rate of profit to fall.
  • Brooks, Mick — "1929: Can it happen again?" (IDOM, March 2008): Directly compares the current conjuncture to the Great Depression, providing historical depth to the argument about competitive devaluation and trade collapse.
  • Brooks, Mick — "US slides into recession — who's next?" (IDOM, March 2008): Examines the domestic impact of the crisis and the class forces at play.

Key Quotes

  1. "The US developed a growing deficit over the post-War period. It suffered the fate of empires, falling into decline compared with its crushing preponderance in 1945, and wasting huge sums on an arms race with the USSR."

  2. "America was able to abuse its privilege of holding the world's reserve currency by simply printing off dollars to pay its foreign debts. Eventually the edifice created at Bretton Woods cracked as the international balance of forces changed in the course of the post-War economic boom."

  3. "If the worth of the dollar is called into question, what would follow? ... 'The US would lose the "exorbitant privilege" of being able to finance its international deficits easily.' It's a bit like owning the mint. What's to stop you printing off a few extra quid to have a party?"

  4. "Think about it; China is in effect lending America the money to buy Chinese exports to the USA. How long can that go on for?"

  5. "These sovereign wealth funds are the most visible manifestation of a shift of economic power from West to East. This change is silent, but it is seismic."

  6. "As economist Charles Kindelberger pointed out long ago, world capitalism needs one economic power to take the lead and set the rules. ... The torch is being passed on once again. Will the gaping hole in international economic regulation have the same consequences as it did in the 1930s?"