US dollar hegemony

Extracted Attributes

• Nature

  Dominant role in global financial system

• Benefit to US

  "Exorbitant privilege", ability to borrow at lower interest rates, finance large fiscal/current account deficits

• Reinforced by

  Stablecoins

• Geopolitical Tool

  Enables imposition of financial sanctions

• Historical Origin

  Post-World War II, solidified by Bretton Woods Agreement

• Safe Haven Status

  Functions as a safe haven currency during crises

• Tether's Holdings

  Massive US Treasuries

• Sanctions Imposed (2022)

  Over 12,000 entities by Treasury Department

• Currency Type (post-1971)

  Fiat currency

• International Banking Claims

  Approximately 55% denominated in dollars

• Foreign Exchange Transactions

  Approximately 90% invoiced in dollars

• International Trade Invoicing

  Approximately 50% invoiced in dollars

• Key Event Impacting Dominance

  Nixon shock

• International Banking Liabilities

  Approximately 60% denominated in dollars

• Global Foreign Exchange Reserves (2022)

  Approximately 60% held in dollars

Timeline

• The US dollar rose to prominence after the financial crisis associated with World War I. (Source: web_search_results)

  1914-1918

• The Bretton Woods Agreement solidified the dollar's international role. (Source: web_search_results)

  1944-07-22

• The Nixon shock occurred, with President Richard Nixon unilaterally canceling the direct convertibility of the US dollar to gold. (Source: summary, wikipedia)

  1971-08-15

• The Bretton Woods system was effectively rendered inoperative due to the Nixon shock. (Source: summary, wikipedia)

  1971

• A floating exchange rate regime de facto replaced the Bretton Woods system for other global currencies. (Source: summary, wikipedia)

  1973

• The dollar's share in central bank reserves was around 70%. (Source: web_search_results)

  2000s

• Since 9/11, the US has increased the frequency of imposing financial sanctions. (Source: web_search_results)

  2001-09-11

• The dollar acted as a safe haven currency during the Great Recession. (Source: web_search_results)

  2008

• The dollar's share in central bank reserves was around 60%. (Source: web_search_results)

  2022

• Over 12,000 entities were sanctioned by the US Treasury Department. (Source: web_search_results)

  2022

• Stablecoins like Tether reinforce US dollar hegemony globally. (Source: summary, related_documents)

  Present

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 15 August 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

• The Future of Dollar Hegemony | Council on Foreign Relations

  The dollar’s global hegemony gives the U.S. government power to impose crippling sanctions and wage other forms of financial warfare against adversaries. Since 9/11, it has used this power with increasing frequency. In 2022, more than twelve thousand entities were under sanction by the Treasury Department, a more than twelve-fold increase since the turn of the century. U.S. sanctions have not had the best record in changing regimes’ behaviors, but they do ensure that targeted adversaries pay a [...] The U.S. dollar has dominated global financial markets since the end of World War II. Almost 60 percent of global foreign exchange reserves are held in dollars, with the euro a distant second at around 20 percent. Around 90 percent of transactions in foreign exchange markets are invoiced in dollars, as is half of international trade. Reinforcing the dollar’s standing is its status as a safe haven currency during times of crisis. For example, during the Great Recession of 2008 and the [...] The U.S. government, economy, and citizenry reap huge benefits from the dollar’s “exorbitant privilege,” as a former French finance minister called it, in global financial markets. Because of the strong global demand for U.S. dollars and dollar-backed securities such as U.S. treasury bonds, the United States can borrow at far lower interest rates than other countries. The U.S. government and firms are also able to borrow from foreign creditors in dollars rather than foreign currencies, so the

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

  The key to the new pattern is [the] absence of convertibility combined with increased demand for U.S. assets. Bretton Woods dollar hegemony was built on U[.]S[.] industrial might and the ability to run trade surpluses. Neoliberal dollar hegemony is built on the standing of the U.S. as the center of global capitalism.28 [...] 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 [...] transactions.41 Dollar hegemony allows the United States to create chokepoints in all three types of infrastructure. When it comes to correspondent accounts, the United States may forbid U.S. banks from holding correspondent accounts with overseas counterparts that offer banking services to sanctioned entities.42 More controversially from a legal perspective, the United States may impose penalties on foreign banks for violating U.S. sanctions because they used an existing correspondent account

• Why the US cannot afford to lose dollar dominance - Atlantic Council

  For the past eighty years, the United States’ economic and geopolitical preeminence and the role of the US dollar as the world’s dominant currency have contributed to a vast increase in global trade and capital flows. The “exorbitant privilege” to finance large fiscal and current account deficits at low interest rates helped the United States maintain its large geopolitical footprint, which contributed to the stability of the environment fostering global commerce and investment. However, as the [...] There is currently no other currency (or arrangement of currencies) that could challenge the US dollar’s preeminence, however. Even a smaller role of the dollar in global trade transactions would not immediately challenge its reserve currency status, given the lack of investment alternatives in other currencies at a scale comparable to US markets. The dollar has also benefited from strong global network effects that would be difficult to replace (that is, the costs for any country to divest [...] First, while the US dollar is still the world’s leading reserve currency, its share in central banks’ reserve holdings has gradually fallen in recent years. The dollar’s share declined from around 70 percent in the 2000s to 60 percent in 2022, when it was followed by the euro (20 percent) and several currencies in the single digits, including the yen, pound, and Chinese renminbi. The renminbi has gained some market share as a reserve currency in recent years; yet China, with its closed capital

• The Fed - The International Role of the U.S. Dollar – 2025 Edition

  Near-term challenges to the U.S. dollar's dominance appear limited. In modern history there has been only one instance of a predominant currency switching—the replacement of the British pound by the dollar. The dollar rose to prominence after the financial crisis associated with World War I, then solidified its international role after the Bretton Woods Agreement in 1944 (Tooze 2021, Eichengreen and Flandreau 2008, Carter 2020).13 documents that about three-quarters of foreign government [...] In part because of its dominant role as a medium of exchange, the U.S. dollar is also the dominant currency in international banking. As shown in Figure 9, about 55 percent of international and foreign currency claims (primarily loans) and 60 percent of liabilities (primarily deposits) are denominated in dollars. This share has remained relatively stable since 2000 and is well above that of the euro (about 20 percent).

• 'Exorbitant privilege': Can the US dollar maintain its global ...

  Since the Nixon era, the dollar’s dominance has mostly only strengthened, even as countries like China have outpaced the US in economic growth, population and manufacturing output. The US has continued to wield disproportionate influence through trade agreements and financial sanctions.