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What Is Dollar Diplomacy?

American foreign investment has brought about infrastructure improvements to the Panama Canal Zone.
President Taft was the first U.S. President to explicitly state that financial aid was a way to further diplomacy.
The U.S. may give an African or Middle Eastern country money in exchange for access to the recipient's oil reserves.
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  • Written By: Mary McMahon
  • Edited By: C. Wilborn
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  • Last Modified Date: 12 August 2014
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Dollar diplomacy involves investing in foreign nations to stabilize them. The term is often used specifically to represent efforts conducted in self interest by the United States; in this sense of the word, it's diplomacy that will benefit the interests of the United States. This approach has been practiced for a very long time by a number of nations, not just the US.

The term was popularized during the term of President Taft, who notably used dollar diplomacy to "send dollars instead of guns" to areas in which the United States had an interest. The government did things like acquiring debt held by insolvent nations and investing in infrastructure in countries that could not afford it. In exchange for this, the United States government expected certain concessions from the countries it was assisting.

Sometimes, the US used this form of diplomacy so that it could play a role in shaping regulatory policy in a way that would be beneficial for American companies. This included pressuring companies to enact lax laws to protect workers, limiting taxation of foreign companies, and other activities. It was also used to secure political power, as seen when the United States reserved the right to vet appointees to key political positions, and sometimes to outright appoint them.

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Beneficiaries of dollar diplomacy were in a difficult position. These nations needed the financial assistance and benefited from the expertise, equipment, and funds American companies brought into their borders. Nations also chafed at being ordered around by the US, however, and felt internal pressure as a result of the control exerted by the country. Some citizens of these nations protested, sometimes violently, and the history of this practice in areas like Latin America and Southeast Asia played a role in military conflicts sparked by resentful citizens.

The United States argued that, while the policy certainly had the effect of opening up foreign markets and creating a favorable business climate for American companies, which benefited the United States, it was also beneficial for recipients. It created jobs, infrastructure, and security for some nations, and in fact, the US continues to invest in foreign allies for the purpose of helping them recover and stabilize after military conflicts, economic downturns, and political turmoil. The focus today is less on self-interest, however, and more on helping allies and friends of the US achieve political, economic, and social independence to create positive long term relationships.

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allenJo
Post 5

@MrMoody - Yeah, I lived in Indonesia during the currency collapse of the late 1990s. Many of the native Indonesians protested against the Chinese, because the Chinese had all the money and owned all the businesses.

In effect, China had exerted its share of diplomacy over Indonesia, but when the currency collapsed, the people rebelled against the Chinese.

You are right. If reforms or things like that are merely commodities bought by currency, they don’t last in my opinion. I think education is a better tool in changing the hearts and minds of people.

MrMoody
Post 4

@everetra - It’s interesting you mention that point about hostile nations. Sometimes these hostile nations start out as allies and then quickly turn allegiances.

For example, people sometimes point to the support by the United States of the Afghanistan Taliban in the the aftermath of the Soviet invasion there.

I personally think that was a mistake. The Taliban, as we all know, clearly did not have democracy in mind, and eventually some of our oil companies had to withdraw from working on projects in the region.

That’s the problem with dollar diplomacy. If your dollars are buying “reforms” or changes, but these are not fundamental changes, then years later your money is subsidizing a corrupt regime instead of creating democratic government.

It’s a tricky business. I think we should practice this kind of diplomacy only with tried and true allies.

everetra
Post 3

I think the Good Neighbor Policy adopted by the Roosevelt administration helped to solidify America’s focus on non military intervention methods. With this policy the United States basically agreed to simply be a good neighbor to Latin America, and help them in other ways, like with financial support and trade agreements.

We had American interests there and so we needed to protect our interests (so the argument goes) but military intervention was becoming more unpopular.

In general, I agree that dollar diplomacy is a more preferred way of protecting our interests abroad. Especially nowadays, military intervention by the United States is increasingly unpopular and viewed as kind of imperialistic.

I would only endorse military intervention in nations that were hostile to us and had declared war. I think it’s a little harder to buy off your sworn enemies.

KaBoom
Post 2

@JessicaLynn - I don't think dollar diplomacy is as sinister as you are making it out to be. Both countries get something they want: the receiving country gets money, and the benefactor country gets some kind of power or say in the country.

I think it's only fair, really. And also, no one is forcing any country to accept dollar diplomacy. If they accept the money willingly, then they're going to know there's strings attached to the money. I guess they must be ok with it then, right?

JessicaLynn
Post 1

I'm not sure what to think about this, but I kind of think it's sleazy on the part of the country who gives the money.

On the one hand, I can see how dollar diplomacy could be helpful to the country receiving the money. But it's not like the benefactor country is giving them money just to be nice. As the article said, there are certain strings attached!

To me, this just seems like a sneaky way to really take control of another country! You give them money and get them dependent on you so then they'll do what you want them to!

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