Dollar Diplomacy: Definition & Examples

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  • 0:00 Dollar Diplomacy
  • 0:36 Background
  • 1:42 Taft's Dollar Diplomacy
  • 3:19 Dollar Diplomacy in Action
  • 5:10 Ending the Dollar Diplomacy
  • 5:42 Lesson Summary
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Lesson Transcript
Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

There are many forms of diplomacy. In this lesson, we'll talk about the dollar diplomacy of the early 20th century and see how it influenced American foreign policy.

Dollar Diplomacy

What defines the international power of a nation? The size of its empire? The strength of its military? How about the reach of its banks? In foreign policy, there are many forms of diplomacy. One of these, in which a nation attempts to increase its international influence through its large economy, is called dollar diplomacy. You may have heard people say that a dollar used to go a lot further back in the day. Dollar diplomacy was all about seeing just how far that dollar could go, and bringing American influence with it.


To understand dollar diplomacy in American history, we need a little background. In the very early 20th century, a man named Theodore Roosevelt became president of the United States. You may have heard of him. Roosevelt believed that the United States needed a stronger international presence. Eighty years earlier, the U.S. had issued the Monroe Doctrine, stating that it would not tolerate European invasion of any nation in the Western Hemisphere. In 1904, Roosevelt amended this with the Roosevelt Corollary, stating that the U.S. had the right to directly interfere in any Western Hemispheric nation in order to protect it from the threat of European invasion.

Basically, what this meant was that the United States would justify sending its military across Latin America any time we became concerned that nations were becoming unstable. An unstable nation was prone to invasion, so our military could go stabilize it. At the same time, American business owners and investors could pour money into those economies, keeping the nations strong and very much connected to American economic interests.

Taft's Dollar Diplomacy

Roosevelt advocated a strong foreign presence that was closely tied to American overseas business interests. However, this wasn't true dollar diplomacy. That next step came with Roosevelt's successor, William Howard Taft (1909-1913). Taft built upon Roosevelt's foreign policy, but took it a little further. Along with his Secretary of State, Philander Knox, he actively encouraged private American businesses and banks to put their money into foreign markets as a way to increase America's international presence. Our foreign policy, our statement of our place in the world, would not come from the government or the military, but from private businesses.

This was a very different approach to American foreign policy. Private businesses are not elected by the people, and are not therefore accountable to the people. They do not need permission from Congress or the Supreme Court to conduct their business. This was an indirect way for America to increase its foreign influence without ever directly stating as a governmental policy that we were going to take over markets in places of strategic value, such as Latin America, China, or Panama.

So was this a purely manipulative venture? No. Taft believed that creating American-controlled foreign markets protected those markets from European empires, which could attempt to colonize smaller nations. Additionally, American-controlled markets could then be used to open up friendlier and more cooperative diplomatic relationships between the United States and foreign governments. At the end of the day, dollar diplomacy was focused on just that: diplomacy.

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