Dollar Hegemony

Extracted Attributes

• Current Status

  Fiat currency with floating exchange rates

• Economic Concept

  Exorbitant Privilege

• Foundational Agreement

  Bretton Woods System (1944)

• Global FX Reserve Share

  Approximately 60% (down from 70% in 2000)

• Primary Reserve Currency

  U.S. Dollar (USD)

Timeline

• The Bretton Woods system is established, setting the U.S. dollar as the global reserve currency backed by gold. (Source: Web Search: Federal Reserve Bank of Philadelphia)

  1944-07-01

• President Richard Nixon unilaterally cancels the direct convertibility of the U.S. dollar to gold, known as the Nixon shock. (Source: Wikipedia: Nixon shock)

  1971-08-15

• The floating exchange rate regime de facto replaces the Bretton Woods system for global currencies. (Source: Wikipedia: Nixon shock)

  1973-03-01

• U.S. dollar share of foreign currency reserves is recorded at a peak of approximately 70%. (Source: Web Search: Yale Journal of International Law)

  2000-01-01

• David Sachs predicts Vladimir Putin will emerge as a winner by gaining influence with BRICS to challenge dollar hegemony. (Source: Document 5cad4e4e-79e4-401e-9806-ecf722cd9b15)

  2024-01-01

Nixon shock

The Nixon shock was the effect of a series of economic measures, including wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold, taken by United States president Richard Nixon on August 15, 1971 in response to increasing inflation and threats of a currency crisis. Although Nixon's actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative. While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful, effectively converting the U.S. dollar into a fiat currency. By 1973, the floating exchange rate regime de facto replaced the Bretton Woods system for other global currencies.

Web Search Results

• Dollar Hegemony: America's Unnamed Empire

  The answer is dollar hegemony, meaning the dominance of the US dollar, which covertly siphons trillions from the global economy to the US each year, and which enables our exponentially-growing debt binge while dampening its inflationary side effects. [...] More broadly, financial dominance follows political dominance. Across history, whenever empires gain political hegemony, their currencies gain economic hegemony too - be it the Roman denarius, Dutch guilder, or British pound; conversely, as soon as empires lose their dominance, their currency diminishes also. For instance, Dutch interest rates finally soared above British rates only when Napoleon decisively defeated and overrun the Netherlands, marking the final death of Dutch hegemony. [...] This is because America has a magic power keeping the gods of debt at bay: dollar hegemony. Built over a century of American economic and military dominance, dollar hegemony—the dollar’s unique role as the world’s reserve currency and the foundation of global finance—allows us to sustain staggering deficits at low cost. The world’s demand for dollars ensures that the US can run deficits that would sink any other country, while offloading their inflationary impacts onto our economic partners.

• Sanctions, Dollar Hegemony, and the Unraveling of Third ...

  I. DOLLAR HEGEMONY AND THE RISE OF FINANCIAL SANCTIONS [...] The reasons contributing to dollar hegemony’s survival, and if anything, its expansion, are fiercely debated amongst (political) economists.29 Some explanations focus on the individual decisions of economic actors. In this telling, hegemonic currencies emerge and are sustained out of the uncoordinated actions of economic actors who opt for different currencies based on perceptions about stability and “safe haven” status, the depth and breadth of financial markets, the advantages of network [...] Today, despite the relative decline of U.S. economic power,35 the greenback remains the unrivaled hegemonic currency internationally. Approximately 60% of foreign currency reserves are held in USD, a figure that has declined since 2000 (from 70%) but has remained relatively stable over the past fifteen years. These reserves are an important asset given central banks’ missions to support the value of a state’s currency. When a currency comes under pressure, central banks will sell their reserves

• De-dollarization: The end of dollar dominance?

  The U.S. dollar is the world’s primary reserve currency, and it is also the most widely used currency for trade and other international transactions. However, its hegemony has come into question in recent times due to geopolitical and geostrategic shifts. As a result, de-dollarization has increasingly become a substantive topic of discussion among investors, corporates and market participants more broadly. [...] While the U.S.’s share in global exports and output has declined, the dollar’s transactional dominance is still evident in areas including FX volumes and trade invoicing. On the other hand, de-dollarization is unfolding in central bank FX reserves, where the share of USD has slid to a two-decade low. In fixed income, the share of foreign ownership in the U.S. Treasury market has fallen over the last 15 years, pointing to reduced reliance on the dollar. [...] There are two main factors that could erode the dollar’s status. The first includes adverse events that undermine the perceived safety and stability of the greenback — and the U.S.’s overall standing as the world’s leading economic, political and military power. For instance, increased polarization in the U.S. could jeopardize its governance, which underpins its role as a global safe haven. Ongoing U.S. tariff policy could also cause investors to lose confidence in American assets.

• Reserve currency - Wikipedia

  The Bank of England was established in 1694, and the Bank of France in the 18th century. The British pound sterling, in particular, was poised to dislodge the Spanish dollar's hegemony as the rest of the world transitioned to the gold standard in the last quarter of the 19th century. At that point, the United Kingdom was the primary exporter of manufactured goods and services, and over 60% of world trade was invoiced in pounds sterling. British banks were also expanding overseas; London was the [...] Arslanalp, Serkan; Eichengreen, Barry J.; Simpson‑Bell, Chima (2022). "The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies". Journal of International Economics. 138 103656. doi "Doi (identifier)"):10.1016/j.jinteco.2022.103656. [...] Prasad, Eswar S. (2014). The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance. Princeton, NJ: Princeton University Press. Eichengreen, Barry (2011). Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Oxford University Press. ISBN "ISBN (identifier)") 978-0-19-975378-9.

• U.S. Dollar Dominance: A Blessing or a Curse?

  Based on our research, we conclude that network effects, not just the size of the U.S. economy, enabled the rise of the U.S. dollar. Because U.S. policymakers and bankers had designed a currency system between 1913 and 1944 that gave the U.S. dollar an edge in terms of network effects, the dollar could become and remain dominant for decades thereafter. Federal Reserve Bank of Philadelphia Research Department U.S. Dollar Dominance: A Blessing or a Curse? [...] Challenges to U.S. Dollar Dominance An ongoing question in international economics is whether the U.S. dollar will maintain its dominant status. Economists propose three scenarios in which this dominance could end. In one scenario, the U.S. dollar loses its dominant status through the emergence of a rival sovereign currency issued by an economic bloc as large as the U.S. economy. In his 2011 book Exorbitant Privilege, University of California, Berkeley, professor of eco­ nomics and political [...] This history teaches us three important lessons about dollar dominance. First, only one currency tends to dominate an integrated market at a time. Second, the dominant currency is not necessarily the currency of the world's largest economy. And third, network effects explain why a currency can remain domi­ nant even after another economy has grown larger.