Home > Publications > Political economy > Is Dollar Hegemony collapsing? South America as the bellwether

Is Dollar Hegemony collapsing? South America as the bellwether

Argentine dollarisation
Sonia Ruseler

Sonia Ruseler

Former CNN World News anchor from Washington and ITN journalist/presenter from London and Tokyo; Consultant on Latin America.

Share this post

Share on facebook
Share on twitter
Share on linkedin
Share on email

The views expressed are solely those of the author (s) and not of Oxford Global Society.

No region of the world is more dominated by the US Dollar than South America. And yet not many people have noticed that the main trading partner of the region since 2010 is China. In almost every single South American country, and by a big margin, China is leading exports and imports as well as foreign direct investment, particularly in infrastructure, energy and mining.[1] 

Will  what is already happening in trade and foreign direct investment one day challenge the US dollar as the dominant currency, or even the United States as the dominant geopolitical power? To answer this question, South America is a great region to focus on, because historically it has been a bellwether for how great power dominance has shifted over the past centuries. 

The dominance of the us dollar in South America – where are we now?

Simply put, the weaker the local currency, and the more dysfunctional the economy, the more the dollar is the benchmark as the safe haven. 

The US dollar, all my life (I am from Argentina) has been like gravity: the invisible but ever present force that grounds everything, what everything is really worth, no matter how much our own currencies bounce around, or how fantastical their official worth.

We think in US dollars when we value real estate; when we negotiate international contracts, or even local contracts sometimes; when we try to save for our futures; when we count on remittances from families abroad.  

Some countries simply gave up on having their own currency altogether and adopted the US dollar: Ecuador, Panama and El Salvador. Briefly, Argentina had a decade when it pegged its own currency to the US dollar. It was called the  one-to-one and lasted from 1991 until 2002, after it collapsed horribly in December 2001. Javier Milei, Argentina’s President-elect, has proposed to abolish the peso and use the US dollar instead.[2]  

And when governments decide on multiple exchange rates, they are always with reference to the dollar. During 2023, Argentina was the best example, with 15 different exchange rates. The official one, of course, and at the other end of the spectrum the black market rate, which is called the blue. The blue rate is about twice or three times the official rate; its value is published by all serious newspapers. Other rates are defined by their uses: the credit card dollar, for any credit card purchases; the soy dollar, for soybean sales, one of our key commodities; the Coldplay or Taylor Swift dollar, for entertainment shows; the Netflix dollar for the monthly streaming cost of Netflix or Spotify. And best of all, the Qatar dollar, the exchange rate for all flights and hotels and expenses in Qatar during the World Cup in 2022. 

In summary, the more unstable the economy of a country, or the smaller it is,  the more dominant the US dollar. But could that change, since in South America currency hegemony has historically followed geopolitical hegemony?

South America has been a great bellwether for geopolitical trends since the 1600s. When Spain was the world’s dominant superpower, South America belonged to Spain, and frankly, the region’s gold and silver contributed massively to that dominance. Then came the Industrial Revolution, and the British Empire. The British funded independence movements in the region, and didn’t bother to make it its colonies. They simply focused on trade and investment. South America became, unofficially, part of the empire, and was linked commercially with Britain, with most investments and loans in Pounds Sterling. 

Then, by the 20th century, it was the United States: we were their backyard, and without a doubt, the US dollar was, and still is,  dominant.

But could that change now: could the RMB one day edge out the US dollar because of a very real shift in trade?

The dominance of China as the main trading partner: What’s been happening this past decade? 

China is by far the continent’s main trading partner. Since 2010, China has become the main trading partner of most South American countries, and in many cases, also the main investor, especially in raw materials and infrastructure.

Here, I am not talking about Latin America as a whole, because Mexico skews towards the US as the top trading partner, thanks to the US-Mexico-Canada free trade agreement. But if we look at the trade numbers in most South American countries, there is no contest between China and the US.

Let’s start from Brazil, the largest economy in the region. For Brazil, 30% exports go to China, and 27% imports come from China. China is also the main source of foreign direct investment in Brazil, record number infrastructure projects, shifting from fossil fuel energy to green energy. In 2022, Brazil exported $88bn to China, led by iron ore and soybeans, with $53bn imported from China, led by semi-conductor devices. The Brazil-US trade in the same year is a third of that: $30bn exported to the US, and $39bn imported.

Another good example is Chile. Its exports to China are $30bn, mostly copper ore, with the US as its second trade partner at exactly half: $15bn. The same proportion is true for Peru, another mining country. In 2022, China is Peru’s first export destination, totaling at $17.5bn, followed by the US at $8.5bn.

This pattern continues for Argentina and Uruguay, with China leading as the main trade partner, followed by the United States. The only major exception is Colombia, which has the US as the biggest trade partner, and China the second. 

As a side note, all South American countries have signed up to China’s Belt and Road Initiative, except for Brazil, Colombia and Paraguay. Brazil is likely  to sign up soon, since the leftist government of President Lula has much better relations with Beijing than the previous government of Jair Bolsonaro, who had an ideological rather than a pragmatic approach to China.

The US and China: Partners or predators?

We hear a lot, especially from think tanks in Washington: is China a partner or a predator? We read it with regard to Africa, but seen from South America, this is a simplistic question. It’s important to remember that we ask the same question of the United States and of European nations: Spain, France, Germany, the UK, even Finland – are they partners or predators? Is the United States a partner or a predator?  

Remember our history. To put it simply, South America has no history with China. Any investment by the US or a European nation, on the other hand, can raise suspicion. China doesn’t have that historical baggage. If you take the centuries view, China’s approach is closer to what the British Empire did: to make sure countries are less attached geopolitically to the previous superpower, and focus on strong trade and investment ties; build an unofficial empire of suppliers and markets for goods.

For us, when we see Chinese companies wanting access to our lithium, is it any different from the United States or Germany wanting to secure future access to lithium or copper? And with exports, for many South American countries agribusiness is our competitive advantage. Yet when it comes to agricultural commodities, one has to remember the protectionism of the European Union and US farmers. So for us, China is a fair trader, instead of one that blocks trade where we have a competitive advantage. Of course, there are concerns that there are deals and contracts with secret clauses, even rumors of secret military and space bases. Is any of this true? It’s a mystery.

Another example illustrates this well. In the past couple of years, the United States became very agitated by Huawei and its dominance of 5G networks. Yet  in South America this doesn’t resonate the way it does in the US or Europe, that fear of potential control by a foreign superpower, that maybe Chinese companies by controlling key telecommunications would have a strategic lever on a country. 

Why? Well, for us to read that the US or the UK or Spain are worried that another country will control them by secretly having levers on a strategic network, that almost makes us laugh.The irony. Welcome to our world. As if those three haven’t done that in South America…since forever, in critical industries, whether petrochemicals, telecommunications, or transport. You seriously expect to warn us to be more concerned about Chinese investment than investment from the US or Europe, which historically have messed with our governments and strategic assets? After all, it wouldn’t be the first time in our history that a foreign country potentially has a critical role in our economies. Banana republics began with us. And that was for bananas, which were never even strategic. 

We know South America will remain attractive for trade and investment, not just for our resources, but also for a reason that is often overlooked. A region that in the world’s imagination is an afterthought, seen as a bit of basket case, actually is mostly democratic and peaceful. Of course we have our problems. But unlike the Middle East, Africa, the Indian subcontinent, or even Eastern Europe, which in the past thirty years has witnessed many wars, including the ongoing Russia-Ukraine war and the Israel-Hamas war.

 Adios,  either/or > ni hao, both/and

South America is already living in a world with two superpowers. One with growing influence, one with waning influence. We don’t know if China’s growing economic – trading, investment and financial – role in South America will one day dislodge the dollar hegemony in the region. 

On the street – savings, real estate, everyday valuations– the dollar is like the English language or popular culture. It is still the only currency we trust with our savings, or trust to agree on the value of anything.

Soft power takes a lot longer to shift than hard power. After all, we still speak Spanish and the colonists left two hundred years ago! English will remain the second language, because it is so much easier than Mandarin, and it is the language of tech. The winner of soft power in Latin America – the universities where you want your kids to study, where you aspire to go on holiday, what entertainment you stream – will remain the United States, for at least a generation, especially as the United States becomes more Latino. The US is becoming closer to us. Miami is already the unofficial capital of Latin America, and our bonds with the US are becoming closer, not further apart. Our cultural ties are getting closer, while our trade ties loosen.

Yet when it comes to business, trade, and investment, China is welcome and respected in South America. This respect does include a degree of fear: we do not understand China. And we need to because China is not just our future, but also our present, as much as the United States and the benchmark power of the US dollar. 

[1] See for example, John Polga-Hecimovich, 22 November 2022. GIS. China’s evolving economic footprint in Latin America. https://www.gisreportsonline.com/r/chinas-economic-power-grows-in-latin-america/

[2] Larry Elliot, 20 Movermber 2023. The Guardian. Does Javier Milei’s dollarisation plan for Argentina make any economic sense? https://www.theguardian.com/world/2023/nov/20/javier-milei-dollar-plan-argentina-economy#:~:text=Milei’s%20big%20idea%20involves%20abolishing,one%20peso%20to%20the%20dollar.