Cooking the Books: Blowing up the global financial system (2026)

The Cooking the Books column from the October 2026 issue of the Socialist Standard

On 24 July US Treasury Secretary Scott Bessent announced that the US  would be taking measures against any individual, bank or organisation that helped Iran engage in international trade but also secondary sanctions against any state that continued to trade with Iran. Asked why these measures weren’t going to be applied immediately, Bessent replied ‘Why would I want to blow up the global financial system?’. It was a good question, but an evasive answer even if it did at least show an understanding of what might happen if secondary sanctions were strictly enforced.

Capitalism depends on international trade, and international trade requires a generally accepted means of payment. Originally gold was this ‘universal equivalent’ that could be exchanged against any other product of labour of equivalent value. The pound sterling, the dollar and the currencies of the other major states trading and investing internationally were convertible on demand into a fixed amount of gold.

This Gold Standard was suspended in 1914 and never fully recovered, with Britain going off it in 1931 and the United States in 1933. It was revived after the Second World War in a modified form known as the Gold Exchange Standard where national currencies were tied to a fixed amount of a national currency that was convertible into gold at a fixed rate. That currency was the US dollar and was convertible at a rate of 1 ounce of gold = 35 dollars. It meant that a unit of a national currency could be expressed as a fixed amount of gold.

This system ended in 1971 when the United States stopped agreeing to buy gold at a fixed rate. However, the dollar remained the main means of international payment and the world’s main reserve currency, which central banks hold for international payments for trade and investment, and which they can use to buy their own currency to try to maintain its rate of exchange.

This puts the United States in a privileged position. Other states’ dollar reserves are held in the form of interest-bearing US Treasury Bills, which means that those states are in effect lending money to the US. In fact it is said that these loans not only cover the US’s trade deficit but also provide it with the money to sustain its military might.

It also puts the US in a position to use sanctions as a foreign policy tool, penalising or threatening to penalise individuals, businesses, and other states by excluding them from dollar transactions if they fail to comply. Trump evidently thinks that it is a good idea to use this power even though it undermines the dollar’s reliability. Whether he will use it to impose secondary sanctions against China for refusing to stop trading with Iran remains to be seen. Banning China from paying with dollars really would ‘blow up the global payments system’.

Other states are taking note of how, from their point of view, the US is abusing its position in the global payments system and have been taking precautions, such as by paying with other currencies and by holding more of their reserves as gold.

Goldman Sachs noted (28 August) that ‘central banks have been diversifying their holdings using gold; which is considered less likely to be frozen than reserves held in foreign currencies’.

Gold may no longer be the money-commodity but it is still a store of value because it’s a product of labour. No interest is paid on gold reserves and gold is not a stable store of value since its price fluctuates up and down as a result of capitalists speculating in it, but at least it is not an asset that another state can stop you using or use to exact compliance.

Cooking the Books: Trumponomics (2024)

The Cooking the Books column from the September 2024 issue of the Socialist Standard

‘On the campaign trail, Trump has floated a ten-per-cent tariff on all imported goods, and a sixty-per-cent levy on those from China’ (New Yorker, 15 July). He also wants to devalue the dollar vis-à-vis other currencies. In an interview with Bloomberg Business he ‘called the strong dollar “a big currency problem” and “a tremendous burden on our companies”’ (Times, 29 July). Tariffs and dollar devaluation, that seems to be what his plan to Make American Capitalism Great Again amounts to.

The capitalist class in any country is not a monolithic bloc when it comes to commercial matters. There are differences between those whose business is exports, those who face competition from imports, those who import raw materials and parts, those who neither export nor require imported materials. What Trump has in mind would affect these groups differently.

A 10 percent tariff on all imports would benefit some US manufacturing companies by protecting them from outside competition. But this would mean an increase (not necessarily proportionate but what the market will bear) in the price of their products. Insofar as these are consumed by workers this would exert an upward pressure on wages, which would affect all capitalist employers even those involved in neither exports nor imports. It would also risk, in fact provoke, retaliation by the other country or trading bloc, which would affect exporters, who in the US mainly produce food for humans and animals.

When in 2018 his administration put a 25 percent tariff on imported steel and 10 percent on aluminium, the EU retaliated with tariffs amounting to nearly $3 billion on US imports. China reacted too. As the New Yorker noted, ‘when Trump imposed tariffs on some Chinese goods in 2018, Beijing retaliated with levies on American imports which hurt American farmers and manufacturers’, adding:

‘If a new Trump Administration introduced universal tariffs, many other countries would face enormous domestic pressure to respond with similar measures. In the worst-case scenario, Trump’s policies could lead to an all-out trade war’.

A world-wide trade war in fact, since Japan, India, Brazil and others would join in as well as China and the EU.

A fall in the value of the dollar compared to other currencies would make US exports cheaper and so be welcomed by exporters. But it would also make imports more expensive and so be unpopular with companies that rely on them, whether to sell or to use to produce something else. Because the dollar is the world’s reserve currency, held by states and companies to settle their international transactions not only with the US but also with each other, a fall in its value would have worldwide repercussions.

It would reduce the value of the reserves held by other states and companies. These are mainly held in the form of US Treasury bills and bonds; in other words, is money lent to the US government and which allows the US to run a trade deficit but also to finance its huge military budget. Making the dollar weaker might benefit US exporters but could make borrowing from abroad more difficult. Some US capitalists disagree with Trump’s approach and the matter (in which workers have no interest) will be settled at the ballot box in November.

Trump may act the boor (and be one) but he is essentially a businessman and wants to use the same sort of tactics — involving bluffs and deals — against US capitalism’s economic rivals that competing capitalist companies apply against each other. States do this anyway but generally more diplomatically. A Trump administration would make it clear for everyone to see that economic rivalry between states is about supporting their companies in the competitive struggle for profits.

From America: Those good old “Good as Gold” dollars (1978)

Letter From America from the December 1978 issue of the Socialist Standard

One question agitating Americans today, as much as any other, is: what has gone wrong with the US dollar in world markets? How does one explain the acute illness of this proud currency, the money that was almost thought to be as good as gold? Because it has made front page news in America in recent times and seems to be getting no better fast, even people who never have much of it, are worried and somewhat crestfallen. There was always that vicarious thrill in knowing that “our” money was so universally venerated. What’s it all about?

The answer, in a word, is “pollution”. There are far too many US dollars held by financial and multinational institutions around the world. “No need to redeem them for gold”, was the assurance when the blizzard of US currency hit Europe in the 60s. “They’re as good as gold”. (Not that there was that much gold in the US Treasury but there was always America’s strong trading ability to bank on). And the quantity of US dollars in foreign hands, today, is out of all proportion to what is needed to consummate the trade that American capitalism can generate.

And thereby hangs another tale because, in theory, devaluation of a nation’s currency is supposed to bring increased trade for that nation’s exporters and this is not happening here. The adverse trade balance remains maddeningly huge and sharp debate concerning its causes is stirred among the “doctors” of economics. But whatever else may be involved, the fact is that this once top manufacturing nation is feeling the competition from an assortment of relatively vibrant economies in Europe and the Orient with more modern plant, equipment, and marketing “know-how”. Those “good-as-gold” US dollars in foreign hands have become so many not-so-hot IOUs and heavy holders are trying to get out from under by changing them into Japanese yen and Swiss francs rather than trading them for US goods.

The truth is that the US dollar has not been “as good as gold” for a long time. In fact, the Nixon Administration, in 1971, officially untied the dollar from gold and declared it as inconvertible to bullion everywhere, as it had been domestically since the first term of Franklin Roosevelt some forty-five years ago. So, while in those years following the Nixon action the dollar remained relatively strong and generally acceptable in Western Europe and Japan, propped up by hope, Nemesis was waiting in the wings.

To begin with, money is a commodity. It must be a commodity because it is used as a means of effecting the circulation of and setting a value upon commodities generally. And so, the quantity of paper bills and metal pieces that serve to represent money — gold — must bear a recognisable resemblance to the quantity of real money they represent. Otherwise they would be worth, on the average, the equivalent of the socially necessary labour time required to produce and reproduce them — damned little, indeed! So when paper currency and metal coins are churned out in America’s mints with little regard for actual money stores, eventually the bitter truth must sink into the heads of those who hold huge amounts of the stuff. Especially when it becomes apparent that US industry cannot compete so effectively on world markets.

(Not that this in an unalloyed evil for US capitalism. The Government, for example, wins a large quantity of those devalued dollars when it sells off portions of its gold bullion — the weaker the dollar the costlier the gold in terms of dollars. And since bond holders and other domestic creditors are guaranteed repayment in US dollars with no provision made for devaluation — it becomes a windfall for the capitalist class, as a whole. All big borrowers, in fact, have seldom had it so good although bankers, understandably, are responding by raising their interest rates and are discouraging long-term loans. And currency speculators, as patriotic as the next, no doubt, are making hay out of the difficulties of the American currency).

But what, if anything, does all this signify to US workers? Most of those who travel abroad will find it difficult to survive unless they visit the soft currency nations, where American money is still respected, and even then will find it difficult to live in the manner they have been accustomed to back home. But the over-production of currency in US mints also translates into continuing inflation in this country and while the rate is lower than in the competing nations it is high enough to bring more than the usual clamour by organised labour for substantial pay increases.

And there is at least one significant change about this otherwise predictable happening. A considerable and rising number of those in the forefront of “labour unrest” are public, or government, employees. In fact, the summer and early fall of 1978 seem to have brought a veritable tidal wave of strike action and threatened strike action by policemen, fire fighters, school teachers, transportation workers, postal workers, garbage collectors, and others in “public employ” forbidden by law to strike. Police and fire fighters, bus drivers and school teachers have in many instances gone to gaol for spurning court orders to return to work. And a number of postal workers, along with many of the fire fighters and policemen, have been summarily fired and forever blackballed from employment in those endeavours. (In the case of the postal workers, there is now an imposed settlement by a Government mediator on the cards and the possibility of more wildcatting by disgruntled employees in protest over the loss of ratification rights by the union membership).

What makes this current trend more interesting is that “public employees” are paid entirely out of tax revenue. The basic arguments of managements of such enterprises are: (1) we can’t find the money without a tax increase and nobody wants that, or (2) we must not make a settlement that is inflationary. A majority of those directly involved are doubtless unwilling to accept such reasoning, but since the majority of the working class believes it pays taxes and will have to foot the added bill, general support for such strikes is uncommon.

In truth, taxes come from surplus value, which is the property of the capitalist class. Certainly it adds to inflation when increases are paid by printing added currency. But there is no law that forbids the capitalists from taking less profit and assigning more of surplus value to those who operate their essential services — no law, that is, but the jungle law of capitalism ordaining that capitalists must strive for greater rather than lesser profit or be destroyed by competition.

Socialists find it worthy of note that public employees, even school teachers and police, now seem to identify more with their fellow workers than once was the case. And yet we hesitate to see the millenium resulting from it. Our pleasure is tempered sharply by the knowledge, gained through long years of experience, that union militancy does not lead, in itself, to understanding the class nature of capitalism and the need to abolish it. Police, militant or not, return to their jobs of protecting the masters’ property and clubbing other militant workers who threaten or defy the law. “We’re only doing our job!” they argue. Teachers resume their task of preparing future wage slaves for a general acceptance of class society and see nothing objectionable about that. And workers, generally, are content with the gains they make in their wages and conditions of work.

If only inflation would vanish! they reason today, either forgetting or not knowing of those long periods of deflation, when prices fell (including the price of their labour power), when hamburger was a quarter-or-less a pound but quarters were hard to come by, when the American dollar was a good as gold (at least outside the United States) and American industrial superiority was universally recognised. Were American workers better off in those times? If you don’t remember or never knew look it up or ask those who do.

Harry Morrison 

(WSPUS Boston)