In this blog post, we explore why the dollar, which dictates the global economy, is issued not by the government but by the FRB, a private bank.
When America sneezes, the world catches a cold!
The financial crisis triggered by the 2008 U.S. subprime mortgage crisis spread worldwide. At that time, news and newspapers flooded us daily with analyses of what the U.S. Federal Reserve Bank was doing, the state of the U.S. economy, and what that meant for our country’s outlook. The world is still in the tunnel of recession. Our country is no exception.
But why all this focus on the U.S.? Some might wonder, “What does what America does have to do with the money in my wallet?” Let’s think about it. Our country has almost no resources. We import nearly everything: oil, iron ore, timber. To buy these, we need dollars. The currency used for international transactions is called the reserve currency, and the dollar is precisely that reserve currency. Therefore, among the world’s many currencies, the dollar is the most significant. Let’s hear from John Steele Gordon, an American financial historian.
“In 2008, America’s financial problems spread across the globe. The reason is America’s size. It accounts for 25% of the world’s total production. It’s an undeniable fact, even if we don’t want to admit it. There’s a saying: ‘When America sneezes, the world catches a cold.’ This is because American companies operate everywhere. America trades with the entire world. It is by far the largest importer and the largest exporter. When the U.S. economy heads south, all the world’s economies follow south.”
There are over 200 countries worldwide. For a single nation like the U.S. to account for a quarter of global GDP is truly an ”enormous amount.” Therefore, our nation’s economy inevitably faces significant influence based on the direction the U.S. takes. If the U.S. heads south, we must head south too. This isn’t just about our country’s situation. Japan, China, France—they all need this dollar. That’s why the dollar, as the reserve currency, is simply the ‘standard’ money.
Why the Dollar Came to Rule the World
So how did the dollar become the world’s reserve currency? The dollar was first designated as the reserve currency in July 1944. At that time, representatives from 44 Allied nations, led by the United States, gathered in Bretton Woods, New Hampshire, USA. They signed the ‘Bretton Woods Agreement’ with the aim of stabilizing foreign exchange markets and promoting trade. They fixed the currencies of countries around the world to the dollar, promising to exchange 35 dollars for one ounce of gold. This was the moment the US dollar became the world’s reserve currency.
However, a decisive turning point occurred. As the Vietnam War began and the dollar’s value declined, countries increasingly demanded, “Exchange the dollars we hold for gold.” Consequently, the amount of gold held by the United States began to drop significantly. The U.S. wanted to print more money but found it difficult to secure gold. When the U.S. could no longer exchange dollars for gold, many countries around the world began to doubt the dollar’s value, and the U.S. found itself on the defensive. Then, in 1971, U.S. President Nixon unilaterally announced the abolition of the gold standard, declaring, “We must protect the U.S. dollar.” This was a declaration that the dollar could no longer be exchanged for gold. This event fundamentally changed the dollar’s status. Even the wording printed on the dollar changed. The phrase ‘TEN DOLLARS IN GOLD COIN’ printed on dollars before 1971 was replaced simply with ‘one dollar’ after 1971. This can be seen as a symbolic statement that the dollar was no longer tied to gold. Dollars after 1971 have no connection whatsoever to gold. They are simply paper money.
1971 can be called the historic year the dollar became free from gold. It also meant that from this point on, the United States could create as much money as it desired. In fact, this was almost revolutionary. Through this measure, the US gained the power to print money without limit whenever it chose and to incur debt as it pleased. It gained the power to issue currency completely independent of gold reserves. Finally, the long-cherished goal of financiers was achieved. This marked the emergence of true fiat currency, free from gold, and is recorded as ‘the greatest economic event in world history’.
The dollar is not issued by a government agency!
So then, who issues the dollar, the world’s reserve currency? Is it issued by the U.S. government? The entity issuing the dollar is the Federal Reserve Bank, commonly abbreviated as the FRB. It is a central bank, similar to the Bank of Korea in our country. However, there is a crucial point not to confuse here. There is a slight difference. The Bank of Korea is a government agency. So, does the ‘Federal’ in FRB literally mean ‘of the federal government’? Looking up the U.S. phone directory quickly reveals the answer. First, check the federal listings; the FRB is not listed there. But if you look under the private companies section, you will find the FRB. While the sign on the FRB building reads Federal Reserve Bank, its official name is the Federal Reserve System. It is a system comprising 12 regional Federal Reserve Banks and approximately 4,800 member banks. It uses the term ‘Federal’ in its name, but it is not a government agency; it is purely a private banking system. This is according to Ellen Brown, President of the Public Bank Institute in the United States.
“Actually, the Federal Reserve System issues money. Like everyone else, the government must borrow money. While the Board of Governors of the Federal Reserve System is appointed by the President with Senate confirmation, it is essentially a consortium of private banks. It works for the banks. The 12 Federal Reserve Bank branches issue dollar bills. You can tell which branch issued a dollar bill by looking at it. When a bank needs cash and requests it from the Federal Reserve System, it goes to the Bureau of Engraving and Printing, a government agency. It’s just a printing place.”
The FRB is merely a tightly knit group of several interest groups that have the U.S. government as their client. It doesn’t use government budgets and isn’t subject to government oversight. They don’t need gold reserves or separate banking counters. When the U.S. government requests it, they print money, lend dollars to the U.S. government, and profit accordingly. That’s why some have called the FRB, alongside fire and the wheel, ‘humanity’s greatest invention.’ It’s something that defies common sense.
Can you believe that a mere coalition of powerful private bankers from one nation can freely print dollars, and that those dollars can control the entire world? Common sense would suggest that such matters should be handled by a government agency with strict oversight and monitoring systems. Yet the U.S. government lacks authority over this, finding itself in the position where it must borrow money from these private banks. In short, it is not the U.S. government that controls the global economy, but a tiny handful of financial capitalists.
Wright Patman, Chairman of the U.S. House Committee on Banking and Currency, stated in his book A Primer on Money, “The Federal Reserve Bank is a pure money-making machine.” Can we truly believe such an institution will care for the vulnerable or help us when we face hardship?
The Greed of Financial Capital
The FRB is even suspected of having actively fueled the subprime mortgage crisis. The prevailing assessment is that until the 1990s, the U.S. real estate market had not entered a state of excessive overheating, or a ‘bubble’. People did not view real estate as a speculative target. However, the FRB repeatedly lowered interest rates, which stood at 6.5% in 2000, eventually bringing them down to 1.75%. With low interest rates, people developed excessive hopes of easily borrowing money to invest, and this became the epicenter of an excessive speculative frenzy where people borrowed to buy homes. From the perspective of the banking principle that higher debt leads to greater profits, this FRB interest rate cut policy can be seen as one method to inflict pain on ordinary citizens while increasing their own profits.
Suspicion about the FRB existed in the past too. From 1914 to 1919, the FRB printed money recklessly, lending nearly 100% of it to small commercial banks. It left almost no reserve funds. Citizens could freely borrow and spend money from these small commercial banks. However, in 1920, the FRB suddenly began indiscriminately reclaiming the money it had previously distributed. Chaos erupted in the financial markets, and citizens buried in debt began going bankrupt. And this wasn’t the end. The FRB then increased the money supply again from 1921 to 1929, and the public once more borrowed enormous sums. But these loans came with a trap. Ninety percent of the loaned funds could be recalled at any time. There was a terrifying catch: borrowers had to repay the loans within 24 hours. In 1929, financial capitalists began ruthlessly reclaiming the loans they had extended. Banks and individuals who had borrowed to invest in stocks went bankrupt in droves. But by then, major players like Rockefeller, Morgan, and Bernard Baruch had already sold off massive amounts of stock and exited the market. This crisis forced over 16,000 financial institutions to close. Financial capitalists gobbled up banks at prices close to giveaway levels and amassed enormous wealth through stocks. This is regarded as the most colossal ‘fraud’ in American history. By arbitrarily expanding and contracting the money supply, the FRB could sacrifice small financial firms and the public as scapegoats. Through this, the FRB gained a monopoly over thousands of financial institutions and continues to wield immense influence over them to this day.
The entire world has entrusted its fate to American finance. You are no exception. Therefore, to see the big picture of money, you must understand U.S. financial policy. Let’s hear from John Steele Gordon, an American financial historian.
“There have been many calls to reduce dependence on the United States. For example, the search for a new reserve currency. But no country has an economy large enough to serve as a reserve currency. Like it or not, the world remains anchored to the United States for the foreseeable future.”
If we fail to see the flow of money within the big picture, we ultimately cannot break free from where we are. We cannot escape poverty. The disappearance of money from our wallets is no accident. The primary responsibility lies with flawed monetary policy from the outset and greedy financial capital. Yet our own fault is significant—we squandered money created by debt. What’s clear is that without understanding how money circulates, we inevitably become victims.
Within capitalism’s structure, money is debt. In a system where interest doesn’t exist, we might become slaves to money. Because it’s a system where someone must go bankrupt for someone else to make money. That’s why we must cultivate the vision to see the forest, not just the trees. We must be able to think about how American society operates and, consequently, how our nation’s financial policies might change. Blaming only structural factors for suffering under the capitalist system leaves us with nothing. We receive no help.
Moreover, this is an era of deflation. The economic downturn will persist for a long time, and signs of recovery will not appear easily. No matter how tempting it is to borrow money or spend recklessly, we must maintain our own center. For ourselves and our families.
Will the ‘Yuan’ be the next-generation reserve currency?
Following the US dollar, the currency most likely to become the next-generation reserve currency is China’s yuan. China has consistently explored this possibility through its strategy of internationalizing the yuan. As China’s economy grows and becoming a reserve currency offers numerous advantages, it has persistently pursued this goal.
Experts identify three key conditions for a reserve currency. First, the issuing country’s economy must hold significant weight in the global economy. Second, it must be widely accepted without resistance in international transactions. Third, it must possess stability.
In this regard, the prevailing consensus at present is that the yuan is the only currency capable of succeeding the dollar. However, experts differ on the timeline. Some argue it will take at least 30 years, while other experts project the yuan could grow into a reserve currency within just 10 years.
