Paola Negrón Ríos
Paola Negrón Ríos is a third year BSc Anthropology student in the Faculty of Social and Historical Sciences. She is passionate about the relationships between society and politics as well as decolonisation processes. Originally from Puerto Rico, her geographic areas of interest include Latin America and the United States.
Introduction
Money is power. Commerce, trade, importation, and exportation create networks that connect every corner of the world. The twenty first century has resulted in an interconnected world, and, consequently, an interconnected global economic market. This began with the Industrial Revolution and continued to take shape well into the twenty first century. By 1910, American politicians recognised the power that money had and begun to use it to exert influence in the global sphere. This approach to foreign affairs was termed Dollar Diplomacy.
Dollar Diplomacy refers to the use of financial and economic resources to influence decisions and behaviours of other nations (Tan, 2022). These may include loans, trade agreements, investments, or sanctions. These benefits are issued to extend, strengthen, or advance the nation’s interests on a global scale. Dollar Diplomacy was one of the United States’ official foreign policy approaches in the early 20th century during the Progressive Era, alongside the Roosevelt Corollary (U.S. Department of State, 2009) and Big Stick Diplomacy (The Editors of Encyclopaedia Britannica, 2024).
This article will critically evaluate Dollar Diplomacy as a foreign policy approach. First, the historical background to Dollar Diplomacy will be explored, focusing on the Monroe Doctrine and the Roosevelt Corollary. Second, the immediate and long-term impacts of Dollar diplomacy are considered. While in some cases Dollar Diplomacy could promote stability, economic development, and democratic principles, it often resulted in long-term economic dependence, social unrest, and political instability. This is evident in cases such as Nicaragua, Honduras, the Dominican Republic, Cuba, and Mexico in the 20th and 21st centuries. Finally, the evolution and contemporary manifestation of dollar diplomacy is analysed.
Historical Background
The theoretical basis of Dollar Diplomacy stems from the Monroe Doctrine of 1823 (The National Archives, 2022a). Established by President Monroe, it solidifies the United States’ position as the Protector of Latin America in opposition to European colonialism. The Monroe Doctrine stated that, if European powers returned to Latin America, the United States would intervene militarily and protect Latin America’s right to sovereignty. This policy was only invoked once, 1865 to support Mexican President Benito Juárez and remove the French emperor Maximilian.
The Monroe Doctrine became a staple of foreign policy at the turn of the century, under the Progressive Presidents. Following increased military presence in Latin America due to the inability of countries to pay their debts to European banks, President Theodore Roosevelt amended the Monroe Doctrine to include the Roosevelt Corollary. This expanded the Monroe Doctrine’s scope to include military intervention in the event of a recurrence of Western colonialism in Latin America (The National Archives, 2022b). Thus, the United States would become an “international police power”.
The Roosevelt Corollary exemplifies President Theodore Roosevelt’s foreign policy approach known as The Big Stick Diplomacy (The Editors of Encyclopaedia Britannica, 2024). Deriving from the West African proverb “Speak softly and carry a big stick”, Roosevelt preferred carefully mediated negotiation and rhetoric sustained by a threat of military action. This approach did indeed contribute to the swift resolution of conflicts such as the Venezuelan debt crisis and the successful arbitration to conclude the Russo-Japanese War, for which Roosevelt won the Nobel Peace Prize. However, when his demands were not met, Roosevelt intervened militarily in Nicaragua, Honduras, Cuba, and the Dominican Republic.
The Roosevelt Corollary had somewhat paradoxical effects: the United States attempted to eradicate Western interventionism in Latin America through American interventionism, the effects of which remain evident today. One of the prevalent examples of the Roosevelt Corollary was the Platt Amendment in the Cuban constitution. Due to American contributions to Cuban victory from Spain in the Spanish American War (1895-1898), the United States was in a good negotiating position at the Treaty of Paris (1898) (History.com Editors, 2010). Consequently, they acquired Puerto Rico, the Philippines, and Guam, Spain’s remaining colonies, and included the Platt amendment in the Cuban constitution. The Platt Amendment established the terms under which the United States would end its military intervention in Cuba and diminished Cuban sovereignty by relinquishing its capacity to enter international treaties with other nations, agree to sell or lease territory to the United States, and allow the United States to intervene militarily and in domestic affairs(U.S. Department of State, 2009). This marks the beginning of American imperialism which was expanded into Asia and continues today.
Although Dollar Diplomacy was not his primary method of conducting foreign affairs, Roosevelt indeed employed one of the first instances of Dollar Diplomacy following a default in debt repayments by the Dominican Republic in 1905 (Veeser, 2015). President Roosevelt opted against a military intervention, instead taking control of the country’s Customs House and using the revenue to repay the creditors.
When President William Howard Taft rose to power in 1910, his foreign policy philosophy employed Dollar Diplomacy as its primary approach (Notre Dame International Security Center, 2023). Taft preferred to intervene financially, as Roosevelt had done in the Dominican Republic, instead of militarily and “substituting dollars for bullets” (ibid.). The aim of dollar diplomacy was to ensure stability and maintain order abroad which would promote American economic interests.
Taft was especially keen on employing Dollar Diplomacy in Latin America, due to the steep debts to European creditors that the nations would be unable to repay, and in China, to resist Japan’s rise of power and maintain the status quo in Asia (ibid.). Indeed, his administration incentivised American banks and prominent businessmen like John D. Rockefeller and JP Morgan to invest in infrastructure projects in Latin America and East Asia to stabilise the area, access raw materials, and create markets for American goods (ibid.).
Impacts
Dollar Diplomacy is considered a foreign policy failure and was swiftly abandoned by the Woodrow Wilson, William Howard Taft’s Successor. However, its effects in Latin America and East Asia are substantial and still evident today.
Firstly, Dollar diplomacy bolstered American power and influence in the global scale, especially in Latin America and East Asia. Due to economic influences, the Americans could shape economies, politics, and governments around the world. This resulted in enduring commercial relationships with Latin America and East Asia as well as solidified the United States’ position as the model for governmental organisation. This resulted in new nations modelling themselves according to American ideals as well as an American imposition for new nations to adhere to their views.
The effects of Dollar Diplomacy can still be felt today. Latin American economies are stagnant and local governments are plagued by political unrest. The Dominican Republic, for example, is among the poorest in the Caribbean, ranking eighth in 2024 (World Population Review, 2024). Nicaragua is currently under a dictatorship and chaos rages in Honduras due to violence by the cartels (ibid.). This is not to say that all the misfortunes of Latin American nations are due to American intervention. Additionally, Dollar Diplomacy also paved the way for violent coup d’états in Latin America and the establishment of U.S. backed right wing authoritarian governments. In the Dominican Republic, the United States withdrawal in 1936 led to an era of political unrest that culminated in the rise of Rafael Trujillo whose dictatorial government was backed by the United States.
New Forms of Dollar Diplomacy: International Corporations and China’s Silk Roads Initiative
The United States, as well as other nations, continue to use economic leverage to advance their interests and influence. However, given the United States’ Dollar’s primacy as the world’s reserve currency, the United States’ economic power is inherent and does not require active efforts to support it. Thus, modern Western Dollar Diplomacy relies heavily on International Corporations such as the World Bank and the International Monetary Fund (Tan, 2022). These corporations offer loans to countries, but they have strict repayment conditions. Critics argue that this can lead to social and political unrest in developing nations that are subject to these conditions.
China’s Belt and Road Initiative (BRI) can be likened to Taft’s Dollar Diplomacy and viewed as a new manifestation of it. Spanning over 60 countries around the globe, the BRI aims to enhance connectivity and stimulate economic development by investing in infrastructure, including ports, railways, and highways (Tan, 2022). This initiative has increased China’s influence in global economic affairs as well as increased in soft power. However, there are concerns over the development of economic dependency on China. It also burdens recipient countries with unsustainable debt, resulting in concerns that China will exert control over weaker nations due to economic ties. It is yet to be seen whether China’s Belt and Road initiative will prove unsuccessful like Dollar Diplomacy or if it will flourish due to today’s geopolitical climate.
Conclusion
President Roosevelt and President Taft knew that money is most definitely power. While the policy of Dollar Diplomacy undoubtedly had its merits, its consequences in Latin America and East Asia were often adverse. Ideally, Dollar Diplomacy would have contributed to developing economic stability and could have enabled sovereignty and autonomy in Latin America. However, it contributed to political instability and economic dependence in East Asia and in Latin America, where the United States merely replaced European colonial powers. While it is officially no longer in practice, the use of economic means to influence geopolitics remains prevalent today. Vestiges of Dollar Diplomacy remain evident in China’s Belt and Road Initiative and the Loan system favoured by International Corporations such as the World Bank and the International Monetary Fund.
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