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Dollar Diplomacy is the effort of the United States—particularly under President William Howard Taft—to further its aims in Latin America and East Asia through use of its economic power by guaranteeing loans made to foreign countries. The term was originally coined by President Theodore Roosevelt on account of money that made it possible to pay soldiers without having to fight; most would agree it was a considerably meager wage...
The concept is relevant to both Liberia, where American loans were given in 1913, and Latin America. Latin Americans tend to use the term "Dollar Diplomacy" disparagingly to show their disapproval of the role that the U.S. government and U.S. corporations have played in using economic, diplomatic and military power to open up foreign markets.
Dollar Diplomacy in the Americas 
The outgoing President Theodore Roosevelt laid the foundation for this approach in 1904 with his Roosevelt Corollary to the Monroe Doctrine (under which United States Marines were frequently sent to Central America) maintaining that if any nation in the Western Hemisphere appeared politically and financially so unstable as to be vulnerable to European control, the United States had the right and obligation to intervene. Taft continued and expanded the policy, starting in Central America, where he justified it as a means of protecting the Panama Canal. In March 1909, he attempted unsuccessfully to establish control over Honduras by buying up its debt to British bankers.
Dollar Diplomacy wasn't always peaceful. In Nicaragua, U.S. "intervention involved participating in the overthrow of one government and the military support" of another. When a revolt broke out in Nicaragua in 1912, the Taft administration quickly sided with the insurgents (who had been instigated by U.S. mining interests) and sent U.S. troops into the country to seize the customs houses. As soon as the U.S. consolidated control over the country, Secretary of State Philander C. Knox encouraged U.S. bankers to move into the country and offer substantial loans to the new regime, thus increasing U.S. financial leverage over the country. Within two years, however, the new pro-U.S. regime faced a revolt of its own; and, once again, the administration landed U.S. troops in Nicaragua, this time to protect the tottering, corrupt U.S. regime. U.S. troops remained there for over a decade.
Another dangerous new trouble spot was the revolution-riddled Caribbean—now largely dominated by U.S. interests. Hoping to head off trouble, Washington urged U.S. bankers to pump dollars into the financial vacuum in Honduras and Haiti to keep out foreign funds. The United States would not permit foreign nations to intervene, and consequently felt obligated to prevent economic and political instability. The State Department persuaded four U.S. banks to refinance Haiti's national debt, setting the stage for further intervention in the future.
Complete overview 
From 1909 to 1913, President William Howard Taft and Secretary of State Philander C. Knox followed a foreign policy characterized as "dollar diplomacy." Taft shared the view held by Knox (a corporate lawyer who had founded the giant conglomerate U.S. Steel) that the goal of diplomacy should be to create stability abroad, and through this stability promote American commercial interests. Knox felt that not only was the goal of diplomacy to improve financial opportunities, but also to use private capital to further U.S. interests overseas. "Dollar diplomacy" was evident in extensive U.S. interventions in Cuba and Central America, especially in measures undertaken to safeguard American financial interests and from the United States government in the region. In China, Knox secured the entry of an American banking conglomerate, headed by J.P. Morgan, into a European-financed consortium financing the construction of a railway from Huguang to Canton. In spite of successes, "dollar diplomacy" failed to counteract economic instability and the tide of revolution in places like Mexico, the Dominican Republic, Nicaragua, and China.
Dollar Diplomacy, known as “[a] policy aimed at furthering the interests of the United States abroad by encouraging the investment of U.S. capital in foreign countries,” was initiated by President William Taft. The United States felt obligated, through the Dollar Diplomacy, to uphold economic and political stability. Taft’s Dollar Diplomacy not only allowed the United States to gain financially from countries, but also resisted other foreign countries from reaping any sort of financial gain. Consequently, when the United States benefited from other countries, other world powers could not reap those same benefits. Overall the "Dollar Diplomacy" was to encourage and protect trade within Latin America and Asia.
“Taft maintained an activist approach to foreign policy. On one hand, he was the initiator of what became known as Dollar Diplomacy, in which the United States used its military might to promote American business interests abroad. Taft, defended his Dollar Diplomacy as an extension of the Monroe Doctrine. Taft was a major supporter of arbitration as the most viable method of settling international disputes” Quickly becoming a world power, America sought to further her influence abroad. President Taft realized that by instituting Dollar Diplomacy, it would be pernicious to the financial gain of other countries. Thus the United States would benefit greatly.
Notes and references 
- The Americans History by Winthrop D. Jordan, Miriam Greenblatt , and John S. Bowes
- "Dollar Diplomacy." Encyclopædia Britannica. 2007. Encyclopædia Britannica Online. 17 Sept. 2007 <http://www.britannica.com/eb/article-9030830>.
- "Dollar Diplomacy, 1909-1913" U.S. Department of State. 11 Mar. 2008 <http://history.state.gov/milestones/1899-1913/DollarDiplo>.