“Currencification” refers to the phenomenon where the widespread use of a country’s currency beyond its borders acts as an effective “Military Tax.”
Currencification bolsters the issuing country’s trade dominance and geopolitical hegemony, much like a king extending his influence over a vast kingdom. Through currencification, a nation’s economic and military power is strengthened by the international acceptance and use of its currency, indirectly supporting its strategic and hegemonic ambitions.
Dollarization and Yuanization
1. Dollarization:
- Global Acceptance: The US dollar is widely accepted for international trade, investments, and as a reserve currency. This broad acceptance provides the US with significant economic benefits.
- Seigniorage: The US earns seigniorage (profit from issuing currency) because foreign entities hold and use dollars. This can be seen as an indirect form of taxation on global dollar users.
- Economic Influence: Countries relying on the US dollar can be influenced by US monetary policy and economic conditions.
- Military Funding: The economic strength supported by dollar dominance helps finance the US military, maintaining and extending US geopolitical influence.
2. Yuanization:
- Increasing Use: As the Chinese yuan gains international acceptance, China similarly benefits from seigniorage and increased economic influence.
- Strategic Influence: Promoting the yuan helps China expand its geopolitical influence, particularly in regions where it has significant trade and investment interests.
- Economic and Military Strength: Enhanced economic power from yuan internationalization can support China’s military capabilities and strategic initiatives.
Historical Context: Poundification
Historically, the British pound held a similar dominant position during the British Empire, particularly under the British East India Company:
The British pound was the world’s leading currency, facilitating trade across the vast British Empire. Acting as both a commercial entity and a de facto arm of the British government, the British East India Company played a crucial role in expanding British influence through trade, taxation, and military force.
The widespread use of the British pound brought economic benefits and seigniorage to the UK, indirectly supporting the British military and its global dominance.
The economic revenues generated through trade, including the use of the pound, helped finance the British military, reinforcing British colonial and geopolitical power.
Summary
Indirect Tax: The widespread use of a national currency internationally can be seen as an indirect tax, providing economic benefits that support military and strategic initiatives of the issuing country.
Historical Parallel: Just as the British Empire leveraged the pound and the British East India Company for economic and military strength, modern economies like the US and China use Dollarization and Yuanization, respectively, to bolster their geopolitical influence and military capabilities.
