Is there a Kantian Categorical Imperative for change in the international reserve system? A recent article by Bloomberg had the following introductory note: “All around the world, a backlash is brewing against the hegemony of the US dollar. Brazil and China recently struck a deal to settle trade in their local currencies, seeking to bypass the greenback in the process. India and Malaysia in April signed an accord to ramp up usage of the rupee in cross-border business. Even perennial US ally France is starting to complete transactions in yuan.”
In the previous two commentaries of this series, we discussed the attempt to force a change in the global balance of power, and also the role of the energy transition in a global market facing significant challenges.
In this last part, we will deal with the means that link the international balance of power and energy. This link is no other than money. We will neither discuss the history or nature of money, nor its moral imperatives. Our focus will be on the efforts to change the balance of power during a historical energy transition that cannot be accomplished independently from controlling the international reserve currency that nations use.
However, before we start, it is necessary to state the following: If one starts analyzing the framework of historical transitions with nihilistic assumptions and premises, and furthermore, if one reduces every argument to a pretense for domination, one necessarily ends with the self-enslavement of people. A concealed nihilism cannot provide a foundation for common humanity that needs functional institutions including the international reserve currency, cannot ensure but the good of the few, advances mistrust and insecurity, and of course, promotes an environment of unaccountability. Hence, the mixture of fidelity, accountability, honor, forbearance, and transparency are necessary trademarks of the Categorical Imperative for an international reserve currency.
During the historical transitions of the last three centuries, the three issues mentioned in this series (balance of power, energy, and international reserve currency) move together down the path of changing the global landscape. The move from wood to coal powered the industrial revolution and brought to the forefront the British Empire and the role of the sterling pound. The transition from coal to petroleum advanced the rise of the US and the role of the dollar. As we are moving down the path of a new energy transition at the time of a Thucydides trap (with China’s rise), calls for the replacement of the dollar with another international reserve currency have been rising and a proliferation of articles are circulating about this very topic.
Most of the recent articles about the de-dollarization push tell a story of a declining role for the dollar in the global payments and reserves system. The fact is that those articles, and those who adopt those views, resemble the Platonic prisoners in Plato’s Cave Allegory. In that Allegory, the prisoners are forced to face a wall and are unable to move their heads. Behind the prisoners, there is a fire, and between the prisoners and the fire, puppeteers carry objects that cast their shadows on the wall in front of the prisoners’ faces. Consequently, the prisoners perceive the shadows as the ultimate reality. The prisoners live in forced deception.
Here are the latest facts about the dollar’s role and dominance: As the following graphs show (from a recent report by the Bank of International Settlements and the Federal Reserve), the international position of the dollar is fundamentally unchanged in the last twenty years, despite the hype and even though another major competitor appeared on the horizon (euro). The dollar’s share in foreign exchange reserves that nations and their central banks hold has indeed declined since the late 1990s. However, this is primarily due to diversification into smaller currencies (such as Australian and Canadian dollars) rather than a reflection of a move towards another major currency.
The following graph shows that the share of dollars in foreign exchange transactions has been about the same (87%) for the last 20+ years, again despite the appearance of the euro.
Source: Bank of International Settlements and the Federal Reserve
However, the most powerful telling can be found by looking at the comprehensive index of international currency use, which as shown below, tells of a story of no change in the dollar’s role. On the contrary, the index tells a story of a declining role for the euro. The dollar has achieved the position of a self-reinforcing means of payments due to its liquidity, convertibility, and open, deep, and liquid markets, as well as its global acceptance as a trusted means of payment.
Source: Bank of International Settlements and the Federal Reserve
Immanuel Kant’s deontological theory taught us that actions should be guided by rational principles, rather than based on personal desires or situational ethics and factors. Kant introduced the concept of Categorical Imperative, a principle/anchor that serves as the foundation of determining actions. If actions meet the Categorical Imperative (maxims that could be universally applied), then the action categorically should be taken. Changing the international reserve system away from the dollar (or its forthcoming digital form) fails all the forms of the Categorical Imperative argument.
Having stated the above, we cannot ignore the realities of the efforts made by different players (Chinese, Saudis, Latin American leaders, etc.), new payment systems (WeChat Pay, Alipay, etc.), Central Bank Digital Currencies (CBDCs), or alternatives to SWIFT, all of which if not addressed properly (including unstainable current account deficits) could destabilize the global monetary system.
Let’s close by returning to Plato’s prisoners: One day a prisoner escapes and he starts understanding the illusions perceived as realities. The freed prisoner realizes that the shadows are nothing but mere reflections of a different reality. As he walks out of the cave he is blinded by the light, however as time passes his vision is restored and he soon realizes that there is a different world out in the open and away from the prison of regimes that have been failing the Categorical Imperative of what a moral action is and what constitutes oppression, illusion, and delusionary goals. It may be time indeed for a new transformative journey that uncovers new assets that can been collateralized by the digital dollar.
The Anatomy of Underpinning Upheavals, Part III: Money, Kant, and the Platonic Shadows
Author : John E. Charalambakis
Date : July 18, 2023
Is there a Kantian Categorical Imperative for change in the international reserve system? A recent article by Bloomberg had the following introductory note: “All around the world, a backlash is brewing against the hegemony of the US dollar. Brazil and China recently struck a deal to settle trade in their local currencies, seeking to bypass the greenback in the process. India and Malaysia in April signed an accord to ramp up usage of the rupee in cross-border business. Even perennial US ally France is starting to complete transactions in yuan.”
In the previous two commentaries of this series, we discussed the attempt to force a change in the global balance of power, and also the role of the energy transition in a global market facing significant challenges.
In this last part, we will deal with the means that link the international balance of power and energy. This link is no other than money. We will neither discuss the history or nature of money, nor its moral imperatives. Our focus will be on the efforts to change the balance of power during a historical energy transition that cannot be accomplished independently from controlling the international reserve currency that nations use.
However, before we start, it is necessary to state the following: If one starts analyzing the framework of historical transitions with nihilistic assumptions and premises, and furthermore, if one reduces every argument to a pretense for domination, one necessarily ends with the self-enslavement of people. A concealed nihilism cannot provide a foundation for common humanity that needs functional institutions including the international reserve currency, cannot ensure but the good of the few, advances mistrust and insecurity, and of course, promotes an environment of unaccountability. Hence, the mixture of fidelity, accountability, honor, forbearance, and transparency are necessary trademarks of the Categorical Imperative for an international reserve currency.
During the historical transitions of the last three centuries, the three issues mentioned in this series (balance of power, energy, and international reserve currency) move together down the path of changing the global landscape. The move from wood to coal powered the industrial revolution and brought to the forefront the British Empire and the role of the sterling pound. The transition from coal to petroleum advanced the rise of the US and the role of the dollar. As we are moving down the path of a new energy transition at the time of a Thucydides trap (with China’s rise), calls for the replacement of the dollar with another international reserve currency have been rising and a proliferation of articles are circulating about this very topic.
Most of the recent articles about the de-dollarization push tell a story of a declining role for the dollar in the global payments and reserves system. The fact is that those articles, and those who adopt those views, resemble the Platonic prisoners in Plato’s Cave Allegory. In that Allegory, the prisoners are forced to face a wall and are unable to move their heads. Behind the prisoners, there is a fire, and between the prisoners and the fire, puppeteers carry objects that cast their shadows on the wall in front of the prisoners’ faces. Consequently, the prisoners perceive the shadows as the ultimate reality. The prisoners live in forced deception.
Here are the latest facts about the dollar’s role and dominance: As the following graphs show (from a recent report by the Bank of International Settlements and the Federal Reserve), the international position of the dollar is fundamentally unchanged in the last twenty years, despite the hype and even though another major competitor appeared on the horizon (euro). The dollar’s share in foreign exchange reserves that nations and their central banks hold has indeed declined since the late 1990s. However, this is primarily due to diversification into smaller currencies (such as Australian and Canadian dollars) rather than a reflection of a move towards another major currency.
The following graph shows that the share of dollars in foreign exchange transactions has been about the same (87%) for the last 20+ years, again despite the appearance of the euro.
However, the most powerful telling can be found by looking at the comprehensive index of international currency use, which as shown below, tells of a story of no change in the dollar’s role. On the contrary, the index tells a story of a declining role for the euro. The dollar has achieved the position of a self-reinforcing means of payments due to its liquidity, convertibility, and open, deep, and liquid markets, as well as its global acceptance as a trusted means of payment.
Immanuel Kant’s deontological theory taught us that actions should be guided by rational principles, rather than based on personal desires or situational ethics and factors. Kant introduced the concept of Categorical Imperative, a principle/anchor that serves as the foundation of determining actions. If actions meet the Categorical Imperative (maxims that could be universally applied), then the action categorically should be taken. Changing the international reserve system away from the dollar (or its forthcoming digital form) fails all the forms of the Categorical Imperative argument.
Having stated the above, we cannot ignore the realities of the efforts made by different players (Chinese, Saudis, Latin American leaders, etc.), new payment systems (WeChat Pay, Alipay, etc.), Central Bank Digital Currencies (CBDCs), or alternatives to SWIFT, all of which if not addressed properly (including unstainable current account deficits) could destabilize the global monetary system.
Let’s close by returning to Plato’s prisoners: One day a prisoner escapes and he starts understanding the illusions perceived as realities. The freed prisoner realizes that the shadows are nothing but mere reflections of a different reality. As he walks out of the cave he is blinded by the light, however as time passes his vision is restored and he soon realizes that there is a different world out in the open and away from the prison of regimes that have been failing the Categorical Imperative of what a moral action is and what constitutes oppression, illusion, and delusionary goals. It may be time indeed for a new transformative journey that uncovers new assets that can been collateralized by the digital dollar.