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.
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.
