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Dollar Diplomacy

A Comprehensive Study of Dollar Diplomacy

Dollar diplomacy, a foreign policy of the United States of America, saw its emergence by increasing its sphere of influence through economic means. The policy, formulated by the administration of William Howard Taft, affected the economy of the U.S. and the countries it invested in during the period.
Madhurjya Bhattacharyya
Last Updated: Jun 3, 2018
Dollar diplomacy is a term used for describing the foreign policy of the U.S., especially under the Presidency of William Howard Taft. The policy aimed at furthering American interest in East Asia and Latin America by using its economic might . It was President Taft who first coined the term. It is historically used by Latin Americans to show their dislike of the role played by the American government and corporations, which used military, diplomatic, and economic power, and forced these countries to open their markets.
Dollar diplomacy can be defined as a policy used by the U.S. government for providing loans to the financially weak nations, so that they are free of financial instability, and in return the commercial interests of the U.S. would be taken care of by the recipients. It was first implemented by President Theodore Roosevelt by peacefully intervening in the Dominican Republic. During his reign, loans were provided to the Dominican Republic, and in exchange, the USA had the right to select a person of their choice to head customs (the major revenue source of the country). Philander Knox, secretary of state in the Taft administration, carried forward this policy in several Central American countries and also in China.
Taft Dollar Diplomacy
President Taft was of the view that the foreign policy of the U.S. should aim at creating stability in other countries, and in the process promote the commercial interests of America. He felt that this would help improve financial opportunities for Amrerican corporations. With this policy in mind, the USA intervened in Central America and Cuba, besides China.
In the Caribbean Islands
The Caribbean islands served as a center of this policy, as the USA had an eye on the commercial and strategic interests in the region, especially in the building of the Panama Canal. Soon after assuming office, President Taft felt that American bankers should take over the debts owed by Honduras to British financial institutions. In 1911, a treaty was signed with Honduras, which allowed American financial institutions to pay the foreign debts, and in return, set up an American customs base in the country. However, the agreement was not ratified by the legislature of Honduras. It was more successful in Haiti in stabilizing its currency.
A classic case of this policy was Nicaragua. In the year 1909, the U.S. government backed rebellion against José Santos Zelaya, a dictator of Nicaragua, and sent marines to Bluefields so as to safeguard foreign nationals. Due to the U.S. backing, Adolfo Díaz, a supporter of the United States, became the president of Nicaragua. A treaty was signed between the two governments, wherein the USA was allowed to refund the foreign debts of Nicaragua. The American Senate debated the ramifications of this treaty, and in the mean time, American financial institutions started rehabilitating Nicaraguan finances. In return, the USA received majority stake in the National Bank of Nicaragua and the state railways.
In East Asia
In this region, a former U.S. Diplomat, Willard Straight, who was responsible for representing numerous banking groups in China, influenced the administration and pressed for an active American role in China. During the early years of the 20th century, railroads played a crucial role in the economic development of China. As such, the American government demanded that its financial institutions be allowed to join railroad projects. During this time, European powers like Britain, France, and Germany were dominant powers, and had their spheres of influence in China. The entry of America alerted the European powers, but Philander C. Knox, the then Secretary of State, convinced the European powers that it would be a win-win situation for both sides. As a result, American financial institutions were allowed to start construction projects in China.
Dollar diplomacy, although referred generally as Taft administration policy, is used by many countries, including the U.S., even today in furthering their economic interests.