Chapter 264
Chapter 264
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Translator: crow
Chapter Title: The One Not to Be Trusted
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During the brief cooling-off period, both Korea and the United States reorganized their ranks while probing for each other's vulnerabilities.
“Disbanding the Third World alliance doesn't look as easy as it sounds. Is there any point in sticking to the old strategy?”
Washington seriously considered pivoting its strategy upon seeing the thick wall Korea had built around the Third World nations.
“Even so, if we go head-to-head with Korea in a trade war, the losses we'd have to bear would be too massive.”
The staffers brought up the options Korea had leaked to Democratic Party think tanks, advising against a direct confrontation with Pyongyang right now.
“So we're just going to sit back and watch those Korean bastards solidify their wall and rise as a formidable competitor?”
“No, sir.”
Council of Economic Advisers Chair Gardner Ackley proposed the following new strategy to counter the Third World alliance.
First, raise interest rates.
“The Third World countries that Korea is strategically nurturing aren't on solid footing when it comes to capital accumulation. If we hike interest rates and start sucking in dollars, a good number of them will face foreign exchange crises.”
“That's a valid point, but if Korea steps in with funding, won't that easily defuse the problem?”
“If Korea does that, they'll have to shoulder a considerable burden just to prop up their economies.”
Of course, the U.S. would bear a hefty burden too, but interest rates needed to rise anyway to tackle dollar inflation.
Second, erect non-tariff barriers.
“Non-tariff barriers? What's that?”
“It means making customs clearance and quarantine procedures more stringent or requiring certifications—ways to drag out costs and time in imports and exports. It can inflict more damage than slapping on tariffs outright.”
“Korea could do the exact same thing, couldn't they?”
“Of course they could. But since it's not as overt as tariffs, Korea will have a hard time responding aggressively.”
Third, support countries that can substitute for Third World goods.
“For instance, palm oil from Indonesia and Malaysia can easily be replaced with supplies from Africa and Latin America.”
By nurturing competitors, weaken these nations' edge.
Gardner Ackley's proposal was adopted as the Lyndon Johnson administration's grand strategy.
“This is a strategy that might take up to eight years to play out.”
“If we can dismantle the alliance Korea's leading, you can use up my entire term.”
Once the alliance is broken, reining in Korea becomes much simpler.
Pressure tactics like squeezing raw material supplies would work then.
“But there's one prerequisite before implementing this strategy.”
“What's that?”
“The petrodollar.”
To make this strategy pay off, the dollar had to be positioned as irreplaceable by any other currency.
Right now, the dollar didn't hold that absolute status.
Just look at its rival, the Korean won.
In the international futures market, you could buy oil with won alone.
Dollars were only needed for trade with the First World; elsewhere, won sufficed.
“We need to boot the won out of the oil payment system as soon as possible. Without that, we can't choke Korea financially.”
The president agreed.
“Wrap up the petrodollar negotiations swiftly.”
For that, they could concede more to the oil sheikhs.
To squeeze Korea's neck, Washington made a new offer to the oil sheikhs.
“Currency swaps?”
“If your country faces a foreign exchange crisis, we'll promise to exchange U.S. dollars for your currency at a fixed rate.”
“How much?”
“Up to ten billion dollars, indefinitely.”
This was as good as handing over cash.
The stalled talks advanced rapidly on this proposal.
At the end, the U.S. slyly floated the option of a “complete petrodollar” excluding Korea's won.
“We'd prefer using dollars exclusively, if possible. What do you think?”
“Well, we need our insurance too.”
The oil sheikhs had no intention of going all-in with the U.S.
‘Why trust the guys who devalued the dollar on a whim?’
With no alternative, maybe—but they had a solid one in Korea. Why back the Americans exclusively?
Saudi expressed its intent to maintain the won-based payment system it had signed with the EA.
“Your Majesty, reconsider. Giving up the won system alone would secure America's unwavering favor.”
“Then squeeze them for more concessions.”
The oil sheikhs were greedy.
America lacked the national wealth to satisfy that greed fully.
“Your Excellency, completely sidelining the won will be difficult.”
The White House acknowledged it would have to settle for an imperfect compromise on this point.
On November 11, 1965, the petrodollar system was established between the U.S. and Saudi Arabia.
In the following two weeks, major oil producers fell in line one after another.
The shift happened faster than Korea had anticipated.
“Let's watch the situation for a week.”
The U.S. government closely monitored the dollar exchange rate in the meantime.
The results were encouraging.
The dollar's value, which had been plummeting, saw its downward curve flatten the moment the petrodollar system was announced.
“Our dollar is definitely finding its proper place.”
With the dollar's status restored, there was no more hesitation.
After running meticulous simulations, the U.S. government set the attack timeline.
“Everyone seems to have accepted the dollar's recovery as reality, so it's safe to start acting.”
“Then get to it.”
On January 15, 1966, the U.S. government dramatically raised interest rates.
“As of today, we are raising the benchmark rate to 12 percent.”
“What? You trying to kill us?”
The U.S. dollar absorption policy sent shockwaves worldwide immediately.
“If we don't follow the U.S. rate hike now, liquidity in our markets will dry up.”
“Th-then what do we do?”
“We raise our rates to match the U.S.!”
Major countries followed suit with rate hikes.
“Whoa, interest rates have gone insane. How are we supposed to live with rates like this?”
Major countries' rates broke through 10 percent in the blink of an eye.
“Is this bank lending or loan sharking?”
Still, the great powers and strong small nations weathered the shock.
They had ample accumulated assets in households and businesses.
But emerging and developing countries were a different story.
Unable to stem the capital flight, they hiked rates—and their companies and households screamed.
“Come up with countermeasures, countermeasures! We can't just sit here and die!”
The U.S. didn't stop there.
“Time to sample some non-tariff barriers.”
The U.S. rallied its First World allies to raise non-tariff barriers.
“Customs clearance suddenly blocked? What the hell?”
“It's just a bit more procedure. Think of it as two extra hygiene quarantine steps.”
Through non-tariff barriers, the U.S. hammered the Third World countries' trade balances.
Since it wasn't overt tariffs picking a fight, Korea couldn't retaliate openly without qualms.
“One more thing.”
As a final blow to Third World nations, the U.S. announced massive plantation plans in West Africa and Latin America.
“The federal government will invest to source timber, rubber, sugarcane, tropical fruits, palms, and more from Atlantic coastal areas nearby.”
Right after this bombshell, investment capital fled Third World countries en masse.
“We're dead.”
The only lifeline for Third World nations was Pyongyang.
Their leaders boarded planes and rushed to Korea, raising a clamor.
“Your Excellency! Without Pyongyang's help now, we're done for.”
“We're aware of the situation. We'll discuss countermeasures and get back to you.”
The Korean government began internal deliberations on aid to the Third World alliance.
The problem: rescuing the entire Third World would cost too much.
Some economic bureaucrats argued for selective support to the wavering allies.
“Throwing life vests to all those guys will drain our foreign reserves too fast. We should only save the ones we can.”
Economically, it made sense.
But considering the prestige of the Republic as Third World leader, such selectivity was impossible.
“That would make the alliance question our solidarity. We can't do that.”
The pro and con arguments clashed evenly.
“If we help every Third World nation, how do you plan to source the foreign currency? Think about the money. Do you think the Republic's reserves are that plentiful?”
The core issue was cash.
Rescuing the entire bloc required astronomical foreign exchange.
Even Korea couldn't cough up that much dollar at once.
Lee Sung-jun, who had been watching the debate, raised his hand.
The bureaucrats finally fell silent.
“Do we really need to supply dollars to put out the fire?”
“What do you mean?”
“Let's use this chance to reorganize them all into the won bloc. The Americans have built walls around the markets for us—those Third World friends have no choice but to look to our hands now.”
With just won, they could get Russian grain or Middle Eastern oil.
Raw materials and manufactures could come from the internal market too.
Did they really need to grovel for dollars?
“But supplying won instead of dollars to douse the flames would shock the Third World allies badly.”
Countries in crisis couldn't wait the time needed to convert Korean won to dollars.
Nine times out of ten, they'd declare a moratorium (Note: debt payment suspension).
Lee Sung-jun countered dismissively.
“But the Republic won't feel that shock.”
A moratorium would make them rely more on the won economic sphere.
Though he called it a partnership of coexistence, Lee Sung-jun's true colors showed in crunch time like this.
The alliance was just a tool for the Republic.
That's why he saw the current crisis not as a threat.
“Finance Ministry, prepare won supplies. Those guys are choking anyway—they'll gratefully take won too.”
To Lee Sung-jun, the Third World allies' crisis was the perfect opportunity to build an alliance system with the Republic at its apex.
The imperialist from the 21st century extended a new noose toward the allies begging for life vests, all while wearing a smile of camaraderie.