Gold and Fossil Fuels in the de-Dollarization Debate

Ensuring Socio-economic Justice

Crescent International

Safar 04, 1445 2023-08-21

Daily News Analysis

by Crescent International

The global drive for de-dollarization remains a hot topic for discussion.

The narratives used to portray the US dollar as the only viable global medium of exchange are becoming increasingly difficult to maintain.

Before delving into the mushrooming arguments against the US dollar, let us briefly glance at the ongoing discussion within circles that hold an optimistic outlook on the future of the greenback.

The argument for a dollar-centric economic order posits that although there is much unhappiness with the weaponization of the US dollar, other countries, except BRICS, are in tacit agreement with Washington.

This narrative, however, is not shared even by the advocates of the US-dominated global order.

Benn Steil, director of International Economics at the Council on Foreign Relations writes that “while there are currently no viable alternatives that could usurp the greenback, the biggest threat to its hegemony comes from the US government itself… And just as the overuse of antibiotics fuels antimicrobial resistance, excessive use of sanctions prompts targeted countries, as well as potential targets, to reduce their engagement with the US financial system. Although this avoidance is costly, the costs are trivial compared to those of, say, having one’s central bank reserves frozen, or even seized.”

Gold is often referred to as a key element in the de-dollarization process.

Apart from being accepted as a store of value and in limited cases as a medium of exchange, gold is the US dollar’s traditional nemesis.

When the US economy is in trouble, gold is usually on the ascendancy.

When the Yankees are doing well, the price of gold declines.

Although gold will not become the medium of exchange, informed analysts point out that central banks around the world are purchasing gold in quantities not seen in the past 73 years and are moving it to their home countries.

Many countries are afraid to suffer the fate of Venezuela whose gold has been confiscated by the Bank of England.

One of the key arguments for US dollar dominance is the so-called trust others repose in it.

This trust is eroding, and it seems gold is where many are choosing to place their trust.

Also, developing countries are becoming bolder in refusing to take economic and political instructions from Washington.

The move away from the dollar is likely to open real conversation that will change the economic paradigm imposed by western economic narratives.

Currently many developing countries derive their economic policies from mainstream western models, which often do not apply to their local realities.

Thus, economic arguments advanced in the past to link developing countries to the US dollar are no longer valid.

This reality will propel alternative economic models and concepts to emerge.

Most importantly, however, the new modes of economic approaches will have the local realities of developing countries as their primary point of reference.

For several decades, countries in Asia, South America and Africa have often blindly followed economic programs and narratives formulated by the west.

Evidence shows that this created dismal economic conditions in many parts of the world.

In cases where developing countries chose not to abide by western economic dictates, they frequently outperformed those that did.

The best-known example is Malaysia.

During the Asian financial crisis of 1997, Kuala Lumpur refused to adopt strategies dictated by the International Monetary Fund.

Stepping outside of the financial and economic framework of western regimes is not the only issue policy makers in developing countries need to focus on.

Another narrative which is being dogmatically imposed on these countries is the anti-fossil fuel agenda.

While the use of fossil fuels undoubtedly has negative consequences, the agenda to eliminate them is tailored to the economic needs and paradigms of western economies.

Developing countries must be aware that the campaign against fossil fuels is not an organic grassroots economic and social movement.

In 2021, The Guardian pointed out that “British Petroleum, the second largest non-state owned oil company in the world, with 18,700 gas and service stations worldwide, hired the public relations professionals Ogilvy & Mather to promote the slant that climate change is not the fault of an oil giant, but that of individuals. It’s here that British Petroleum, or BP, first promoted and soon successfully popularized the term ‘carbon footprint’ in the early eighties. The company unveiled its ‘carbon footprint calculator’ in 2004 so one could assess how their normal daily life – going to work, buying food, and (gasp) traveling – is largely responsible for heating the globe.”

Developing countries must carefully study the negative repercussions for their economies before they jump on the western regimes’ anti-fossil fuel bandwagon.

It is essential for the global south to consider the immediate economic consequences of abrupt shifts away from fossil fuels.

Many developing economies rely heavily on their natural resources, including oil, gas, and coal, as significant contributors to their GDP.

Hasty abandonment of these industries could lead to substantial job losses, reduced government revenues, and potential economic instability.

Transitioning to cleaner energy sources requires substantial investments in technology, infrastructure, and workforce retraining.

Advanced economies can afford to invest in clean energy infrastructure due to their higher income levels, often acquired at the expense of the developing countries.

The global south may struggle to prioritize these investments over more pressing socio-economic needs.

As the global order undergoes serious reconfiguration, the global south should not miss the opportunity to carve its own independent and indigenous path to social, political and economic development.

Adopting the narratives and programs of western regimes without prioritising local needs will merely extend neo-colonialism.