Dollar Diplomacy

Dollar diplomacy is a term used for describing the foreign policy of the United States of America especially, under the Presidency of William Howard Taft. The policy aimed at furthering American interest in East Asia and Latin America by using the economic might of the USA. It was President Taft who first coined the term dollar diplomacy. The term 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 Definition
Dollar diplomacy can be defined as a policy applied by the government of the United States of America of providing loans to the financially week nations so that, they are free of financial instability and in return the commercial interests of the USA would be taken care of by the recipient. The policy was first implemented by President Theodore Roosevelt by peacefully intervening in the Dominican Republic. During his reigns loans were provided to Dominican Republic and in exchange the USA had the right to select a person of their choice to the head of customs (the major revenue source of the country). Philander Knox, the secretary of state, in the Taft administration carried forward Dollar Diplomacy in several Central America countries and also in China.

Taft Dollar Diplomacy
President Taft was of the view that the foreign policy of the USA 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 USA corporations. With this policy in mind, the USA intervened in Central America and Cuba besides China.

Dollar Diplomacy in Caribbean
The Caribbean islands served as a center of dollar diplomacy 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 take over the debts owed by Honduras to British financial institutions. In1911, 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. Dollar diplomacy was more successful in Haiti, as this policy was successful in stabilizing the currency of the country.

A classic case of dollar diplomacy was Nicaragua. In the year 1909, the government of the USA backed the rebellion against José Santos Zelaya, a dictator of Nicaragua and sent USA marines to Bluefields so as to safeguard foreign nationals. Due to the backing of USA, 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 the USA 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.

Dollar Diplomacy in East Asia
The aim of the foreign policy of the USA towards East Asia was the same as that of Central America. In this region a former USA Diplomat Willard Straight, who was responsible for representing numerous banking groups in China, influenced the administration and pressed for 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 the 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. Read more on reasons for foreign aid.

Thus, dollar diplomacy was a foreign policy used by the government of the United States of America, to increase its sphere of influence in Latin America and East Asia. It uses the financial might of the country instead of military might to increase America's sphere of influence.