 Patrick Barron is our returning guest this weekend for the first of a two-part interview. His last appearance discussing currency wars and the potential end game for the Euro generated huge interest at Mises.org, YouTube, Stitcher, and iTunes. Patrick is a professor at the University of Iowa and the University of Wisconsin, but more importantly for us, he's one of the foremost Austrian economists when it comes to the intersection of geopolitics, central banks, and Austrian theory. Our topic, both this weekend and next, is monetary imperialism, an issue with enormous implications for the world economy. How does the US use the dollar as a weapon of economic and cultural power? How did the Bretton Woods Agreement set the stage for the US dollar to dominate the world economy? And how long can it all last? What might the unprecedented collapse of a worldwide reserve currency look like? And how do the BRIC nations and Asian central banks fight back? Patrick speaks to all of this and more, both this weekend and next. Stay tuned. Ladies and gentlemen, welcome back once again to Mises Weekends. I'm your host Jeff Dice, and as promised, we are back for round two with our friend Patrick Barron. And the topic this weekend is monetary imperialism. Patrick, I'd like to start out by throwing out a quote from the former French president Giscard d'Estaing. I'm hoping I'm saying that closely to correct pronunciation. He said this in the 1960s. He termed the US dollar status as the world's reserve currency as our exorbitant privilege. And from my reading of it, he didn't say this happily. He said it somewhat bitterly. So I'd like to get your thoughts in an overall sense of what the US dollar status as the world's reserve currency really means. Well, actually, that quote from d'Estaing. I thought that, I think, probably Jacques Ruff, who was the, not sure I'm pronouncing that right properly either, but he was the great French economist who was of the Austrian school. And he is, I think he's the one who termed the Britain-Woods Agreement as conferring upon the dollar and American exorbitant privilege. Now, Henry Haslett, who is a well-known American Austrian economist who at the time attended the Britain-Woods Agreement or Britain-Woods Conference in New Hampshire in 1944 as a reporter for the New York Times, was very critical of the agreement because he said it conferred upon one nation too much of a, too much power, and it was too greater responsibility. And I think what he meant by that was it conferred too great a chance, an opportunity to cheat. And this is exactly what America did. So what the Britain-Woods did, during World War II, because the U.S. had been the arsenal of democracy before we actually got into the war, two years after Britain did. We had been producing arms for all the allies. And we were, we had a huge balance of payments credit that was being paid in gold. And over the course of the war, the United States accumulated a huge reserve of gold. So we had, I don't know what the percentage was, but the lion's share of the world's reserve of gold in all the central banks. So at the Britain-Woods Conference, there was a desire to return to a found money of some kind. So what they came up with was that there would be interbank settlement among central banks, and the settlement mechanism would be in gold or dollars, and that the dollar would be pegged at $35 an ounce. So it's the Bank of England or the Bank of, well, it's just the Bank of France. Since we're talking about the French, I think the Bank of France accumulated a lot of dollars because we were buying French goods, then the Bank of France periodically would present these dollars to the Federal Reserve Bank and would demand gold at $35 an ounce. Well, the central banks of the world didn't really, this is called the Gold Exchange Standard, by the way. A private individual couldn't present, couldn't present the dollars to the Fed, but other central banks could. So it conferred upon the U.S. the ability to, if the dollars weren't presented for payment, to cheat and actually start printing money, which we did. But periodically, the banks would present some dollars. Over the years, the years went by, especially into the 60s, it was Charles de Gaulle, who along with the advice of Jacques Ruff, and Charles de Gaulle was a hard-money man. He was a gold standard man. They recognized what the U.S. was doing, and they said, you know, there's some cheating going on here. The U.S. is printing dollars and buying foreign goods, so in effect, we're getting pieces of paper that are not really worth $35 for one-thirty-fifths an ounce of gold, and yet we're giving the Americans good, French goods for that. So he told the Bank of France to redeem 80% of their dollar holdings, which they had counted as the same as gold at $35 an ounce. Well, this, over time, started what in effect became a run on the fit, and that is what drove us off the gold standard in 1971. I did some calculations just recently to see, well, what would we have had to devalue the dollar to gold? What would have been the rate if Nixon was just taking us off the gold standard and decided to just say, well, you're going to have to present more dollars to get your ounce of gold so that we don't run out of gold? And I calculated at that time it would have been over $400 an ounce, which shows how much money the U.S. actually printed in the, you know, since World War II. Of course, what really caused the big explosion in dollar printing was Lyndon Johnson's guns and butter policy of the 1960s, where he simultaneously fought the Vietnam War and introduced all his welfare programs that he called the Great Society. So the U.S. that was called a reserve currency. It was sort of a technical term until we went off the gold standard. So this technical term of reserve currency meant that Central Bank would hold dollars as reserves the same as gold at a certain exchange ratio. So it was a technical term. Now, when the U.S. went off the gold standard, it didn't mean that people would, Central Banks had no longer hold dollars. It just meant that they're technically the term calling it a reserve currency is just sort of a necronistic name. And now, Central Banks hold dollars just for the convenience of it. And sometimes they hold dollars, often they're holding dollars for the wrong reasons because they have bad monetary policy themselves, which we can get into. So, Jeff, that's kind of a long-winded explanation of what it means to be a reserve currency. Well, Patrick, today, Hans Hoppe, among others, uses the term monetary imperialism to describe U.S. monetary policy. And what he means by that, paraphrasing, is that the dominating state uses its position to enforce a policy of internationally coordinated inflation, in effect. So can you discuss this phenomenon a little bit for us? Well, what's happening today is all the Central Banks of the world are following the wrong monetary policy, which allows the United States to become a monetary imperialist, which means that we are papering the world with our dollars and we're buying foreign goods and we're giving people paper dollars that are worth less and less all the time. But we have to realize that this is an imperialism that only takes place because the other countries have bad monetary policies themselves. They allow it to happen. So here's an example. China runs a huge foreign exchange credit with the United States. And the reason they do that is because they are running a mercantile economy, meaning that they believe that accumulating foreign reserves are good for their economy. Plus they want to, they think that they can export their way to prosperity. So they are giving more yuan for the dollar than would be the case in a non-interventionist market. If they did not inflate the yuan, then the US importers who are trying to import Chinese goods would not get as many yuan for the dollar as they are now. And therefore, China wouldn't sell as much to us, of course, because their prices would be technically higher in dollar terms. If you're still getting 10 yuan to the dollar, you'll only get eight or seven or six or five. Then it technically means that Chinese goods are more expensive. But the Chinese don't want that to happen. They want to keep their export industries going. So they are in effect, they're printing more yuan. And they're importing inflation. But they import inflation, you might say, voluntarily. But so they're allowing the United States to be a monetary imperialist and export our inflation to them because they are rigging their own internal foreign exchange markets. If they didn't do that, then the United States would be quickly called to account. And we would see that our economy would go into recession because our foreign goods of the United States would become more expensive. Now, we can stay a monetary imperialist. The important point of this is, only as long as the other countries allow that to happen. And right now, we are seeing a lot of pushback in the world from Russia, China, the Arab countries, India, who are saying that we don't want to trade in dollars anymore. We don't want to settle our accounts in dollars because the dollar is becoming worth less and less. The US is expanding it. So they're searching for some way to do this, something that is more honest. So they've talked about actually using gold as an exchange. And I think that this is going to continue because the US is just, we show no inclination to stop our monetary imperialism because there hasn't seemed any reason to do it right now because everybody's accepting the dollar. But it's not going to last. What happens with all these imperialism of any kind, whether it's monetary or military imperialism, it tends to expand and expand until it actually collapses. And at some point, the rest of the world will realize that, in effect, the emperor has no clothes. And they're going to say, well, that's it. Maybe it'll be Japan or maybe it'll be China and Russia and India that will get together. Maybe Brazil will jump in there, too, and say, we're not going to do this anymore. We're not going to use dollars to settle our foreign accounts. We're going to use some other currency. And if I could continue this thought, my hope is that one of the Western countries would be the one that would break this chain. And I was hoping, I am still hoping, that it would be Germany rather than Russia or China or one of the Arab countries. Because I just think that Germany is a solidly Western law abiding as a respect for property rights. And it would reinstate the Deutsche Mark. And over time, the Germans would not inflate the Deutsche Mark as the rest of the world are inflating their currencies. And that the world would start demanding more Deutsche Marks. And that would put pressure on America to stop inflating the dollar. So this is what I'm hoping would happen. And this is how America's imperialism, monetary imperialism would end. Let's face it, it will end because it's bad for the rest of the world. The rest of the world realizes that getting off of the dollar is not going to be painless or they haven't been willing yet to endure the pain. But the longer they put up with America's monetary imperialism, the harder it's going to be when they finally do throw in the towel and say, well, we've just got to do something else. So it will end. And I just hope it ends sooner rather than later. Well, that's interesting. You talk about pushback by countries. And there's a lot of angles to this. For instance, Asian central banks hold lots and lots of dollars. So they have a vested interest also as exporters in propping the dollar up. But they understand in a long-term geopolitical sense that having the US dollar dominate is not in their interest. We've heard recently about this talk among the BRIC nations potentially forming their own central banks. Patrick, would this be as simple as just opening more oil exchanges that aren't priced in dollars? I mean, could that be the beginning of the fall of the House of Cards? Well, I think it's already beginning. And I'm not saying it's going to be simple, but I don't believe that we're going to see that there's any kind of great Bretton Woods type conference among the Russians and the Chinese and maybe the Indians and the Arabs. It's more likely that international corporations will start wanting to trade in something other than the dollar. And this is already happening. I have it on good authority from some friends who work for a major, major American escort company on these coasts that their goods are being settled. Their trades are being settled in yuan in Asia. And that's because their partners want yuan and they don't want dollars. So I think already this has begun. So it may be something that's already beginning, but it's just not on a radar screen and there's not a lot of statistics out there to point this out, to show us what is happening. But I think it's very likely that in many ways, the United States has overstepped its bounds. I mean, my God, we just are wars all over the world are being financed by printing dollars. And so the dollar is losing its value. So all of the countries of the world, such as China and Japan, who each hold a trillion dollars of our, actually they're holding a trillion dollars of treasury bills that they would exchange for dollars, they're becoming increasingly nervous that their holdings of American financial instruments and dollar terms are depreciating as they sit there. So they don't like this. They don't really quite know what to do about it yet. Or like I said before, they know that getting off of the dollar, ridding themselves of the dollar will not be paying free and they're just at this point not willing to accept the consequences of it, but it will be done because it was Herb Stein, Nixon's financial advisor told him, you know, if something can't continue, yeah, if something can't continue, it will not continue. And he was right, you know, if American financial imperialism cannot continue, then it will not continue. It's just when will it happen? Well, Austrian economists, we know that we don't like to answer any questions that says when. Patrick, thanks so much for a fascinating and informative discussion. We will be back with more from Patrick next weekend in round two of our discussion of monetary imperialism. Ladies and gentlemen, have a great weekend.