The US Dollar as the Global Reserve Currency: Implications for US Hegemony

Abstract

This article analyses the implications of the establishment of the US dollar as the global reserve currency. The political and economic context of the founding of the dollar as the reserve currency is examined, and key changes that have occurred since the dollar was installed as the global reserve currency are explored. Challenges to the future of the dollar as the global reserve are analysed. The article argues that the dollar as the global reserve currency is an instrument of US hegemonic power, but it is one that has been largely overlooked in the existing literature on US hegemony.

U.S. National Debt- A Risk Management Approach

“…Additionally, the government should restrict spending in other areas and adopt pay-go budgeting, by only proposing costs assigned to the respective revenues (Summers & Furman, 2019). Regarding external policy, the main issues involve the expanded role of China in the world economy and financial markets in addition to the inquiry of China, Russia and the organization of the petroleum exporting countries (OPEC) on the maintenance of the dollar as a world reserve currency (Costigan, Cottle, & Keys, 2017).…”

“…After WWII, the dollar emerged as the world reserve currency, ensuring the U.S. supremacy in international trade and the global financial system. In 1944, the Brenton Woods agreement established the dollar-gold connection which meant that other countries could buy and trade dollars based on a fixed gold conversion rate (Costigan, Cottle, & Keys, 2017). U.S. hegemony was strengthened, bringing along capitalistic and free market concepts to international trade that opened new foreign markets to American companies, fostering a strong long-lasting American economic growth that gradually shrank the national debt (Costigan, Cottle, & Keys, 2017).…”

“…In 1944, the Brenton Woods agreement established the dollar-gold connection which meant that other countries could buy and trade dollars based on a fixed gold conversion rate (Costigan, Cottle, & Keys, 2017). U.S. hegemony was strengthened, bringing along capitalistic and free market concepts to international trade that opened new foreign markets to American companies, fostering a strong long-lasting American economic growth that gradually shrank the national debt (Costigan, Cottle, & Keys, 2017). The "golden" U.S. hegemony endured until 1971 when President Nixon was forced to withdraw the dollar-gold standard because the golden reserves were far below the supply of dollars required to face the ascending national debt.…”

“…Even after the withdrawal, only the U.S. "possessed the necessary political control over financial institutions that would facilitate capital flows", which is the reason the U.S. dollar persisted as the world reserve currency (Costigan, Cottle, & Keys, 2017, p. 109). Henceforth, the Federal Reserve was able to manage the monetary policy more freely, as the money supply was no longer restricted to the gold correlations imposed by the Brenton Woods agreement (Costigan, Cottle, & Keys, 2017).…”

The Dynamics of the Current Global Restructuring and Contemporary Framework of the US–China Trade War

“…The rise of China and other rival powers, together with the US' growing national debt, budget deficits, and overextension of the US military, have placed the USA in an unsustainable economic position that will ultimately affect the US dollar. However, despite the contemporary problems with US finances, no currency, or a mix of currencies, can substitute the US dollar as the global reserve currency (Costigan, Cottle, & Keys, 2017).…”