Hats off to Harry and Nixon

Two of the greatest benefactors and monetarists of a unique kind in the modern history of the USA were Harry Dexter White, a lesser acclaimed economist/senior official in the Treasury Department, and Richard M Nixon, the 37th American President. Ironically, both had a sordid and sad exit. Harry died in August 1948 after being accused of espionage for collaborating with USSR. Nixon, on the other hand, had to step down from his presidency in his second term in August 1974 faced with almost certain impeachment owing to the Watergate scandal. He died in April 1994 struggling to restore his lost reputation and finding a respectable slot in history. The founding of Richard Nixon Presidential Library & Museum in Yorba Linda, California, now administered by the National Archives and Records Administration and receiving a state funeral which was attended by the then five living US Presidents along with the world dignitaries from 85 countries do suggest that Nixon was eventually able to redeem his honour.

Nixon was considered a foreign affairs pundit but he played a much bigger role as a financial wizard. Confronted with stagflation in the 1970s, he suspended the gold convertibility of the dollar that triggered the collapse of the decades-old monetary system hammered out at Bretton Woods. In order to avert any unpropitious consequences, Nixon reinvented the currency by introducing the concept of petrodollars oil trade by signing an agreement with Saudi Arabia. So, the hegemony of the US dollar was adroitly sustained which is still robustly holding its ground. But the unfettered printing of dollars by increasing the debt to GDP ratio as a recurrent feature now is coming closer to crossing the Rubicon. An economic turmoil of domino effect will rage through the world like a wild fire if the trust in the dollar glut is vitiated accidentally or by design. A new economic world order will then replace the US-driven international monetary system as has happened in history after every catastrophic event. The setting of the sun on the British empire is vivid in our memory, hence the lesson is loud and clear that when a superpower crumbles its satellite nations also break their strings.

The founding father of dollarisation in the world was, unarguably, Harry Dexter White. He negotiated with the most famous British economist of the 20th century, John Maynard Keynes, and paved the way for the greenback to become a reserve currency of the trading nations by deftly assigning it the pivotal role of a reserve currency in the international monetary policy formulated at Bretton Woods Conference in 1944. According to Benn Steil, the author of The Battle of Bretton Woods, Harry Dexter White went a mile more by surreptitiously replacing the word “gold” with the phrase “gold and U.S. dollars” in the final agreement which immensely benefited his country in the years ahead. Reportedly, Keynes later admitted to not having read the final version of the document he signed.

Today the USA is ignoring the looming threat to the dollar by Bitcoins and other cryptocurrencies which in my own estimation is greater than renminbi of China. The digital currency inherently has all the trappings to attract the surplus and deficit economies alike around the globe, including the countries facing sanctions. It is the safest mode of payment for cybercrimes ransom and undocumented transfer of huge funds from one country to the other. This unique monetarism is mushrooming without any regulatory framework and oversight through blockchain technology. The world has not come together to curb this menace of bulging trade. Instead, a lot of developed countries are edging towards accepting it as normal business by taxing the capital gains. But the USA should not turn a blind eye if it wishes to keep the dollar working wonders for its economy and maintaining the superpower status.

Published in The Express Tribune, February 12^th, 2022.

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