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What was Dollar Diplomacy?

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Quick Answer

Dollar diplomacy was a policy intended to increase American influence abroad by guaranteeing loans made by American banks to foreign countries. The policy is mostly associated with President William Taft. This policy aimed to create stability in areas of the world prone to violence and revolution.

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Full Answer

President Taft and his Secretary of State Philander C. Knox came up with the idea of dollar diplomacy as a way of stabilizing potentially violent areas of the world and increasing American influence abroad, particularly in Latin America and East Asia. Instead of committing the U.S. military to endless campaigns to prop up ailing governments, he wanted to help governments improve their economies and thereby become more legitimate, reducing the possibility of revolution. Also, he wanted to improve the influence of the United States and to limit that of the other great powers. Dollar diplomacy helped to do that. For example, after engineering the overthrow of the Nicaraguan government, the Taft Administration guaranteed loans to the new regime led by Adolfo Díaz, and in China, dollar diplomacy helped U.S. financial interests take part in building a railroad. However, because of opposition at home and revolutionary discontent abroad, dollar diplomacy was a failure, and it was repudiated as an explicit policy by Taft's successor, Woodrow Wilson.

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