By Patrick Celaya.
Source:https://www.quora.com/Why-is-United-States-currency-the-dominant-world-currency
This:
The prerequisites for a reserve currency are less about economic might than it is about military might. The fact that the United States has both is why most international investors feel safe exchanging goods and services via the US Dollar.
This wasn’t always the case. The British Pound was the reserve currency prior to the World Wars. The British Empire’s Pound was secured by an elaborate network of Imperial supply chains and backed by the might of the Royal Navy. This made the Pound an attractive currency to conduct international trade. It was almost guaranteed that if you did business through the British Pound, that your transactions would safely reach their foreign destination.
World War I and II changed everything. The Germans employed a U-Boat strategy that quite effectively sunk more British ships than they could manufacture. Combined with the amount of money the British Empire borrowed to win the wars, they were forced to essentially sell their rights as a reserve currency to those damned Yanks, in exchange for supplies (and eventually an alliance).
This handover of reserve currency status was solidified in the 1944 Bretton Woods agreement. Much less known about this agreement was the brutal disagreements occurring behind closed doors between the Americans and British. British Economist, John Maynard Keynes, and American Economist, Henry Morgenthau, had yelling matches about how to transition the postwar economic system. But the Americans had all the leverage in the negotiations, and they ultimately pushed their agenda forward.
This became known as the Bretton Woods system, which is the system we all live under today. It was the largest peaceful transfer of responsibility in human history. The British essentially gave the Americans the keys to their Empire.
The Bretton Woods system is built on 4 pillars:
- Choke points – The US Navy took responsibility to secure international trade via its Navy. They did this by placing Naval installations on maritime Choke points. Choke points are where oceans pass through narrow land bridges. It’s by no coincidence that all US foreign engagements since World War II have been about securing choke points. This is because controlling these choke points allows the US Navy to simply close off international trade access to a foreign rival, since all foreign trade is forced to pass through these supply routes. If a foreign power does not act in accordance to US interests, the US Navy can simply isolate their rival’s economy, and use this as leverage to force them to adjust their behavior accordingly.
2. Bribing up an alliance – The United States then offers absolute free access to international trade under the protection of the American Navy to those who act in the interests of US policy. This means that Denmark can trade its excess grain to Malaysia, for their excess rubber, and the US Navy will take the responsibility to make sure the trade between those two countries reaches their destination without harassment. And they do this for free… well kind of. All the US asks in exchange is that they make these transactions through the US Dollar reserve currency. Oh, and when the US is angry at someone, that means Denmark and Malaysia better be angry at them too.
3. Sanctions – Sanctions are when the United States is mad at someone, but doesn’t want to go to war with them. This is how the Soviet Union was dealt with, and a tactic used aggressively by the Trump administration. The US can choose to bribe all the other countries of the world to stop trading with a rival, under the threat they will cut their access off too. They do this by preventing all USD transactions to a specific country, and using their Navy to block direct supply routes to that nation. It effectively isolates the nation’s economy, making their economy extremely fragile. The Soviet Union only survived as long as they did because they had sufficient food, water and oil resources for self sustainability. Not everyone has that luxury. Which brings us to the last weapon the US has used, and was used, to bring down the Soviet Union.
4. The PetroDollar – When China opened up its market to the US network in 1974, this allowed the United States to withdraw from Vietnam. The US then turned it’s focus to the Middle East, where massive oil fields were churning out enough energy for the entire global consumption. The US then established an agreement with the Saudis in the 1970s to exclusively trade their oil exclusively for US Dollars. In exchange, the United States promised to use its military to protect their interests. It was this agreement that allowed the US to drown the Soviet economy into submission (by flooding the global market with cheap Saudi oil). But the Catch 22, was that it was this agreement that has dragged the US to fighting a religious war they have no idea how to fight.
Global reserve currencies are historically rare. Throughout history, currency domination was usually established by regional powers, such as the Roman, Persian, and Han Empires. It wasn’t until the British that one national currency went global. And their currency domination lasted for only 2 centuries (essentially from the Seven Years War to the end of World War II). This forced the British throughout this 200 year period (1763 to 1945) to get involved in just about every global conflict, since every global conflict affected the stability of their currency network.
The British learned the hard way that while controlling the global currency was strategically expedient, it was ultimately unsustainable. They found themselves being forced to fight conflicts that weren’t directly in the interest of their own nation. In other words, they were forced to increasingly deploy their military when there wasn’t exactly a threat to their national security, but instead a threat to their currency stability. This was expensive, costly, and eventually dragged them into bankruptcy once Japan, Germany and Italy forced them to cash out on all their protection guarantees.
While it is doubtful a foreign currency, or Bitcoin for that matter, will ever challenge the supremacy of the US Dollar (at least in the near future), it is possible that the responsibility of maintaining a global currency could jeopardize the financial well-being of the United States. It is an exhausting responsibility, with global headaches and annoyances. It is why since 1945 we’ve had soldiers fighting in rice paddies in Indochina, cocaine fields in Colombia, oil compounds in the Islamic world and the jungles of sub-Saharan Africa.
Sometimes I think the British conned us in 1944 when they turned over the reserve currency.
Those tricky bastards.
Comments:
The Millennial Philosopher
Dude, this was a sick answer. Really clarified everything I knew and thought I knew lol. Most people don’t realize Saddam and Ghadafi both threatened Petro dollar hegemony… then what happened to them?
Emilio Maurice
Remember when the late Venezuelan leader Hugo Chavez nationalized the oil in his country, the bureaucrats in DC were furious.
Warren Dew
This is an excellent answer. However, there is an important recent nuance due to a crucial development: the ending of the Bretton Woods system and the floating of the US dollar as a fiat currency in 1971.
With the dollar as the global reserve currency, much more value is held in the form of dollars overseas than in the form of foreign currencies in the US. US dollar inflation acts as a tax on those overseas dollar reserves, reducing their value, and effectively transferring that value to the US economy. If you calculate the value of that “inflation tax”, it’s around $200 billion per year – or about the budget of the US Navy. Coincidence?
Brian Emmett
Not just foreign countries, U.S. citizens too. It’s all the same currency. And counterfeit is crime no matter who does it.
Ray
There’s no problem in the US inflating the dollar to affect its own citizens since that’s what happens when any other country inflates its currency. The problem is when they make other country citizens lose money too. This is why there’s now a huge push towards replacing the USD. People are fed up with it.
Warren Dew
My point was just that, while the dollar is the dominant currency because of the US Navy’s part in guaranteeing free trade, which I take to be Patrick’s key point, the US isn’t just providing that service for free; we’re basically getting paid for the cost of providing that guarantee.
Michel Gehin
This explains why, when a country thereatens to abandon the USD to conduct oil transactions in another currency (e.g. the Euro), that country is pretty much wiped off the map.
Iraq
Libya
And soon Iran
Emilio Maurice
I think the only reason why the US hasn’t invaded Iran as yet is because the bureaucrats in DC know Iran has a strong military and a population that is loyal to their government.
Richard Calvert
The Iranian military is fairly strong, I agree. Your assertion that the population is loyal to that government is far from accurate. It could fall from internal forces anytime.
Bob Solomon
If Iran is doing grand, why is tiny Israel so good at cleaning it’s clock? Why is it sucking up to Putin? Why is it killing women protestors only to end it’s roaming sadists groups? That was mefiev force followed by subject surrender to it’s good people, O think. Iran had shown fear it’s people are angry with their rulers.
Get real. Look at Iran as Russia use it. as ,Israel uses it. as US uses it. Iran is a fine culture, but not a military power of importance or political state of importance. Maybe it will get a bomb. That will impress no one very much, not Pakistan, Murds, India, US. Or Israel. Or its women.
Moeez
The US is using the EU for its interests. Smaller countries get used by bigger and stronger ones. Protests in Iran like Masha Amini are foreign funded, to get Westerns boiled up on human rights, where Islamophobia is at peak. Iran has been peaceful internally for quite some time, the US can’t digest it. The greedy bastards removed a democratically elected leader and installed a dictator so they could get their opium (oil). Recently there have been gas attacks in schools in Iran and the government doesn’t know who did it. Most probably the US at it again to destabilise it. The US could go to any lengths to maintain its hegemony by protecting the petrodollar. Well it’s not too long before the world dumps the USD, your banking system is collapsing and China is ready take over, China actually brokered peace between Saudia and Iran. Peace is the future poorer countries want. The US only imports war in the name of democracy.
Judas Modi
Those punks you see who want to wear short pant and be liberal doesn’t represent Iran. Not even 10% Irani people think wearing short dress equals freedom. Go visit Iran yourself. Your BBC,CNN are yellow journalism.
Michael Collins
The British conning the US?? Hardly.
The US had a severe case of the green eye and didn’t want the British to have the much needed financial help as well as hang on to the vestiges of its empire. Aside from the fact it would have helped Britain repay the US back but, instead, the US negotiators bullied Britain into giving up its empire as a condition of the financing.
In effect, it was the US that put the final nails into the coffin of British empire. Not the world war in which it initially stood largely alone, until the beginning of 1942 (basically after Pearl Harbour in December 1941), enabling the US to profit at Britain’s horrendous expense.
Pat C.
That’s fair. I was being pithy.
If you read the “why” behind Morgenthau and George Marshall’s (defense secretary) reasons as to why they went after the Pound was because they were more or less “fed up” with the European Empires constantly going to war.
They felt suppressing the Europeans economically, and thus politically, would force them to change their constant aggressive trajectory.
I don’t necessarily share that opinion, myself. I am in more of the camp that both World Wars were a byproduct of the rise of Russia and the German Unification. Had the Versailles Treaty broken Germany back into the HRE (or something similar), I think that would’ve prevented a second war.
But the whole Russian Revolution thing complicated that. I guess hindsight is always 20/20.
Michael Collins
Your penultimate point is interesting an interesting take there PJ.
If the UK had not intervened in the first war, for even a little as a small number of months, Europe would arguably not look so different as it does today. The British Empire would’ve avoided the massive contraction it suffered having to fight two world wars. It would also have negated the need for American interference in EU political and financial affairs that effectively marked the end of British predominance in the globes financial system.
It would have quite possibly averted the birth of Bolshevism and the vitriolic antisemitism in the 1920’s was more of a French thing than it was German. Arguably with the Kaiser in control, Hitler would possibly been a content old soldier painting silly postcards and Lenin would’ve stayed in Zurich waiting for collapse of capitalism. It was the first war that gave birth to these barbaric depots.
If Britain had stayed out and allowed Germany to achieve it’s predominance over mainland Europe, as it has since done, it would been strong enough to provide a credible check on it minus US involvement or support.
Needless to say, it would have been far more preferable for Germany to have achieved its hegemonic position in Europe without the senseless loss of life over two world wars. To be clear, the first war only became a world war, as opposed to a continental war, because the British government erroneously chose to enter it.
As you say, hindsight is always 20/20, but it is with said hindsight that we can confidently say the first war was a colossal mistake.
The US would certainly not have achieved its position without it, that’s for sure.
Pat C.
I also take the controversial point of view that the UK should’ve avoided getting involved in the First World War.
It either bodes well to brilliant French politicking to convince the Brits to jump in, or the British opinion that the war wouldn’t have been as horrendous as it turned out to be… maybe a combination of both.
But I think the Germans were being rather “bold” when they ignored Britain’s requests to suspend their naval buildup. I rather think the British wanted to “humble” the Germans. Add to that industrial weaponry and an endless supply of radicalized young men, and you have a recipe for slaughter.
Unfortunately, it did take the external power of the United States to calm the situation. But I think it’s time for us to come home, or at a minimum, retrench our position.
Michael Collins
There were certainly secret treaties that whilst so, were no less enforceable and were also a causal factor. If there had been a route or basis for independent arbitration, this would’ve also contributed to a different outcome over Belgium.
The naval buildup was for sure dumb as it created a naval arms race and the Germans were engaging in doomed strategy they could least afford.
In 1910 the ratio of British capital ships to German was 2.3, In 1914 it was 2.1. Interestingly, comparative percentages of defence expenditure (as a % of NNP) for 1913 was 3.2% for Britain and 3.9% for Germany.
Misha Thomas
Michael, thanks for this! How stunning for me to read your encapsulation here. What best book or books might you recommend for me to study up on this angle and perspective about the role of WWI on the events of the Second WW?
I ask because I myself find it sad and appalling how out of context we seem to reflect on WWII! Your comments here seem to support my hunches— but I’m hungry for some good history behind it, not just hunches.
Michael Collins
You’re welcome Misha.
It’s a fact most of the stuff that’s written about WW1 analyses the movers and shakers of the event which to my mind provides an incomplete picture. I found the economic analysis to provide more answers as most of the critical WW1 ex-ante decisions had strong, underlying economic drivers.
To this end, I’d recommend “The Pity of War” by Niall Ferguson.
Apologies for being tardy in getting back to you as well.
Master Jinn
They were fed up with the European empires going to war, so they seized control of global shipping and now the US has discovered… the world power guaranteeing shipping is basically always at war for one stupid reason after another.
Jack Rhodes
Poor imperialists, losing their colonies. Surely, if the US hadn’t forced them, they could have kept their imperial holdings indefinitely
Michael Collins
You’re missing the point by a country mile Jack. As you appear to have not properly understood what was written perhaps being a little blunter might help you.
There was no net economic benefit to the US in forcing the UK to relinquish its colonies. None. In fact it, from a debt coverage perspective, made the UK a greater credit risk. It was just the US being a bully boy and taking strategic advantage of the situation.
It’s a bit like brutalising someone when they’re down. Such was the case when the UK stood alone in Europe and the US were effectively behaving like racketeers.
This is exactly what Trump will do the UK when it leaves the EU Union and whilst he will be doing what the White House has always done to their family friends, his inelegant ‘me win you lose’ approach will be particularly brutal.
Michael McMeel
There was no possibility the UK would not relinquish its colonies. After they let their Irish colony go in 1922, (Strange that someone named Michael Collins would forget that) it was obvious that the UK lacked the sand to do what it took to maintain their empire in the face of the determined opposition spawned after Woodrow Wilson’s siren song of “self-determination” hit the airwaves.
When they were just looting the Fuzzy-Wuzzies and knocking them on the head if they got too froggy, the Empire was a paying proposition. The inter-war vision of the British Empire as a commonwealth of nations linked by trade foundered on the rocks of the sheer expense required to drag a billion people kicking and screaming from the 11th Century to the 20th.
After Amritsar, the Empire was dead. It just took 25 more years for the nose to fall off.
Michael Collins
The lyrics and the melody for Woodrow’s top of the pop’s ‘self determination’ song was written by his Commerce Department and yes, my names sake was the icing on the cake. That was all US politics aimed at supporting their negotiating position and then making sure it happened.
I do take your point about India and, in fact, the Empire could be likened to a metaphorical ‘hub and spoke’ where everything was financed from and traded for London’s account. India represented a rather large chunk of value so when the Non-Cooperation Movement began in 1920, widely seen as an Amritsar ripple, it would have certainly been difficult to maintain India as a functioning colony. But in the absence of its mortgage to the US it would surely that would have been for Britain to manage, without US inference.
I actually read the book on the Big Man when I was quite young. I remember it to be both interesting and chilling.
It was a surprise, at 12 or 13 to be walking past a second hand book store in Fremantle WA, to see a book with ones name on it pressed against the window. Clearly had to buy it.
Jack Rhodes
Oh god oh no, he brought Trump into it, the intellectual is too powerful for my mind to comprehend.
Aart Strong
“There was no net economic benefit to the US for forcing the UK to relinquish its colonies.” Agreed. But you gotta admit that it must have been quite satisfying for the U.S. Government to put the last nail in the coffin of America’s erstwhile colonial master. It’s a bit like kicking your obnoxious former boss in the nards and bringing him down to his knees while wearing a smirk on your face.
Elliott J. Schuchardt
The United States had to destroy the British empire. It was an economically-closed system. The United States could not trade there on the same basis as the British.
Ray
It’s just replacing one set of imperialists for another though. Why do you think BRICS and the global south are pushing for a replacement to the US Dollar and SWIFT in trade?
Arani Das
Well, Britain was alone until Operation Barbarossa in June 1941. Not until Pearl Harbor.
Michael Collins
That’s when Germany stupidly opened up the Eastern Front against Russia. This understandably delighted Churchill because this meant forces and resources aimed at Russia weren’t being thrown at Britain.
This was more of strategic benefit rather than direct equipment or financial help. Russia needed what ever it had for themselves.
In practical terms, therefore, Britain remained alone.
Arani Das
AFAIK, US was still selling a lot of materials to UK (much more than they did to Germany). Anyway Russia also benefitted from the Battle of Britain, as Luftwaffe suffered unreplaceable losses in both aircrafts and experienced pilots there. I don’t think the Soviets would have gained air superiority so much sooner (which was still almost too late) with their barely trained pilots and ancient planes (they caught up in technology, but that was one year later).
John Phileas
How’s the bitcoin network supposed to do all this fighting?
Do you need a second network of private warlords holding crypto to make it work?
Martin Vratny
It can’t work. That’s exactly why it can’t work.
The original idea behind bitcoin, before it became money laundering scheme with a healthy mix of Gordon Gekko thrown in, was beautiful but naive and ultimately destined to fail.
To change global monetary system you first need to change the global governmental systems. And no Bitcoin is ever doing that.
Xinhai Chen
Worse of all, bitcoin has been known for money laundering for criminals. One hacker emailed and made an attempt to blackmail me into transferring money into bitcoin. Why would I even give in to a threat, when it just proves I can be picked on? So ignorance is the best answer.
Quora User
What do you mean when you say:
“When China opened up its market to the US network in 1974, this allowed the United States to withdraw from Vietnam”
Pat C.
Vietnam was about isolating the South China Sea supply routes to the Communists of East Asia… China opening up its market meant that we could abandon that project.
Steven Martin
So, America fought in Vietnam, so America could control trade routes to China?
Elliott J. Schuchardt
Nixon and Kissinger wanted to turn Vietnam into a backwater, by focusing on China. That was very successful for 30 years. However, now China and Vietnam are becoming very powerful.
Ray
Are you sure about that? Both China and Vietnam are number one and two in militarizing and building artificial islands in the hotly contested Spratlys. I wouldn’t say these countries are peaceful, though I guess compared to America they are.
Malleus Sinarum
Finally an American that understands the power of the sea. Maratime powers control the globe. Thats why Britain could not let Germany build a fleet…and we keep Russia too poor to build a fleet. Now we have to do the same to China – or war. Yep thats our choices. Why? memorize this: Who owns the sea lanes owns the world Island. Who owns the world Island owns the world.
Tianren Tan
The abandonment of Breton Woods ushered Petro Dollar. Then Breton Woods II system was born in early 2000’s.
Bretton Woods system – Wikipedia
and even that is now considered finished after 2008’s financial crisis.
Paul Testa
The US empire is only “solvent” through debt, $22 trillion and counting. The whole world is watching and realizes that the principal on this debt will never be repaid, we owe too much, but over time they are recouping their money, plus they keep getting the interest payments forever. They only come out ahead doing this if eventually they stop lending to us any further. I don’t know but it seems likely that we are approaching this scenario. When our only sources of debt become just from US banks the house of cards begins to tumble. I’m not an economist but I’ll bet it isn’t going to be pretty.
Michael Collins
It’s singularly due to these huge FX USD volumes that US economy remains viable.
The US knows that when commodity trades, for instance, stop being priced and settled in USD, the economic impact will be profoundly disastrous.
This is the primary reason behind the US paddling out the warships when ever there is hint of such ‘treason’.
Elliott J. Schuchardt
Bingo. You win the prize. The effect on the United States will be disastrous. See any American-made products in your house? Cell phone, computer, television, clothing, cars? Nope. Nada. Welcome to the new Third World, for those who survive the transition.
Zeke Victor
Your premise seems a little hyperbolic, even if your conclusion is rational and true. I.e. there are some recognizable, even a few industry leading, brands of products in those categories you listed that are in part or whole American made.
Perseus Esparza
You keep the shipping lanes open… the rest will follow.
Stepan Serdyuk
Don’t you worry, guys. It seems that China will soon relinquish you of that heavy burden.
Le Xin
China is in no shape to be a global military power in the next 50 years, barring a serious disaster for the US military. If OP is correct, and most of us agree that he is, then China just can’t project the military power needed. They have great weapons, and great regional power, but those are not nearly enough.
Arani Das
China projects economic might, and their army is there just as a deterrent. They are taking a different path than the US had taken (they also do not have the luxury of a devastating war that took out almost all of their strongest competitors). Already we are experiencing a sharp rise in Chinese soft power across the globe and this is unprecedented since the rise of US in 1940s.
Siddhartha Banerjee
by far and large the best explanation in contemporary terms
Aeris
Didn’t kenyes want a world currency like the bancor instead of the US dollar? I wonder how a world currency like the bancor would change things.
Michaelson Sarmiento
Because Britiain, then America used to have rules and laws invented by reason which is no longer the case anymore. The same things happen through history.
Matthias Heinze
There is more than just a little conspiracy theory in this reply. The CCCP controlled it’s sphere of influence even across oceans (Cuba) without the US Navy interfering in the least. Trade embargo works only for the side that is much stronger economically. The CCCP boycotting Germany would not work, Germany is far larger economically.
Hugh Gormi
Well argued. The only part I would dispute is whether USA and Russia have real animosity – they seem to be in each other’s pockets (well, the president of USA does what the president of Russia tells him to).
You mentioned Bretton Woods. Was the US delegate, Harry Dexter White, found to be a Soviet spy in the end?
But Bretton Woods has lasted longer than anyone expected, and the US dollar as global currency is about to lose its place. Then we will know whether it was a blessing or a curse for USA.
Kevin Skinner-Smith
Piracy by any other name 🤔 but ye olde pirates are fading away. Olde pirate coinage pieces of eight gold doubloons British pound US$, all pass into history.
Jeff
Great answer, but a few minor corrections: the USA withdrew from South Vietnam in 1971, well before Nixon went to China.
The Saudis didn’t voluntarily pump so much oil the price reduced in the early 1980s, so much as their cartel members “cheated” pumping more oil than they had each officially agreed to produce. This is the classic dilemma with cartels: while each member benefits from the power of a unified front, they each also benefit by cheating, meaning opposing motives are always present.
There is also a more subtle game constantly playing out in petroleum extraction: raise prices per barrel too high and power shifts to related technology for getting oil out of the ground using newer methods.
The Saudis have the most oil ready to be pumped, but they can’t control technology, meaning high prices ultimately tend to undermine their position by encouraging the use of technology to pump from under the seabed or use of fracking to scrub difficult to otherwise extract deposits, increasing oil supplies in lands not controlled by OPEC. Thus the KSA usually balances prices, going as high as they can without making it worthwhile to deploy expensive new technology that undermines the power of OPEC.
The USA also has yet to fight a war in Africa since WWII. Even military advisors are minimal and usually temporary: we’ve not yet made any government there a major ally the way Germany, Japan, or South Korea are. American investment in the continent is quite low compared to our historic positions in Latin America, where control and influence of governments has involved use of US armed forces fairly regularly and as recently as the 1989 invasion of Panama.
Jay Bazzinotti
Trump made no real sanctions. He said he did but mnuchin made sure they were toothless.
John Morrison
Just one bite to add — a sanction is purely economic, whereas an embargo is a quasi-military action. A blockade is a military action — if a country engages in a blockade they are also ready to go to war.
Gürsu Altunkaya
Thanks for this. Could you please give more details about the part where you say “When China opened up its market to the US network in 1974, this allowed the United States to withdraw from Vietnam”? Could you cite sources that corroborate this, please, because I found it really interesting but couldn’t find anyone else writing about it while I was trying to confirm it. Thanks in advance.
Erik Jensen
He made it up. So he can’t provide any sources for this claim.
Logan James
Ah. So that’s why the US has a retarded amount of super carriers.
Wilson Logan
On every substantive point of disagreement, history has proven JMKeynes to be correct.
If the US had adopted the Bancor as World Reserve Currency it could have avoided the consequences of the Triffin Dilemma.
Total economic productive power confers World Reserve Currency status. Not just pure military might.
World Reserve Currency status will eventually transfer to China but I believe that the Chinese are smarter than the Americans and will bypass it by moving to a Bancor like solution (the IMF SDR is a close approximation).
When the UK lost World Reserve Currency status, the 20% drop in value of the pound kicked of the longest export led growth streak in UK history.
But that won’t happen in the US. The UK had capital controls. The US does not.
What will happen is an Asian style debt crisis as US Dollar floods back into the credit market.
If the US had half a brain it would take control while it still has it, set the agenda while it still can & start the transition now to a truly global currency before events overtake it.
Gerhard Lauck
Thank you! Very insightful!
Rakesh Shivarama
Bookmarked to read again and again. Loved it 🙂
Rahul
A well researched answer! Thank you for the same.
Chirag Agrawal
One of the best amswers I have read on quora !!
Nik Ahmad Azlan
How do you think cryptocurrencies like bitcoin going to change this global system?
Pat C.
I’m doubtful they’ll ever challenge actual Government currencies… if they did, the full weight of the Governments will do everything they can to suppress it.
Arthur Chan
“Sometimes I think the British conned us in 1944 when they turned over the reserve currency.”
Those tricky bastards.
There may be a grain of truth to that, but it may not have been straightforward. People don’t give up “status” that easily. When you look at how Trump is disengaging the US from the world, it is in the most indignant and counterproductive way, not to mention some other things. It takes grace to let things go…
Michael Collins
That grain of truth could be measured in nano meters.
The US bullied the UK into giving up. There was much indignation and rancour during the Lend Lease negotiations from the British side. They basically regarded the US behaviour as an act of extreme bad faith. It was Churchill that basically relented because, aside from being a total pragmatist, he didn’t have a choice.
This is why the mention of the much vaunted ‘special relationship’ was and remains largely one sided in the US’s favour.
You mention Trump. The US is taking aim at the UK again, in times of economic need, to take another big one-sided bite of its economic pie. Yes, for sure it’ll be a trade deal like the UK hasn’t seen before. It’ll just be another case of sinking the boot into the UK when it’s down.
One gets the feeling the US is like that abusive uncle in the family that everyone tolerates because of the potential inheritance but keeps the children away from.
Vasile Andreescu
A good answer, but it was not the Bretton Woods that brought down the USSR. The USA could not bring Russia down, and petrodollars have no effect on Russia, much less on the USSR. It was simply the KGB betrayal of their own country that made Gorbachev a puppet and led to withdrawal of the Soviet armies from the whole Eastern Europe and to the dismantlement of the USSR despite the will of their peoples duly expressed in a referendum. The dollar has been there due to the US military power, convenience of using one currency, especially when strong guarantees were given, US business flexibility and readiness to secure new mechanisms to boost dollar-based trade, but it cannot force or make the USA able to impose its will on countries like the USSR or China. The best example: North Korea, they cannot do anything against it despite their military and economic power due to fear of North Korean retaliation. The USA cannot act against countries like Cuba, Venezuela, Syria, Iran and, lately, Bolivia, where Russia decided to help them against the US bullying. So, no, it’s just the convenience of the oligarchs in Russia and China that is keeping the US dollar-based worldwide trade alive despite the global inflation it produces. Thank you for your attention.
Jan Kong
Thanks for this. Now everything makes more sense. Cant believe they dont teach this in schools around the world.
Faisal Haider
Nice way to end an informative article!
Z K Wong
What about the Spanish silver dollar?
Sunil N
The CROWN rules.
Britain is a small island with an insignificant population, yet their power is immense.
Their roll lasted 200 years and we still run most of our infrastructure from what they left us.
Rail network. Roads. Legal. Every thing….
Roger H Mayo
The reserve dollar and the Faustian bargain of the Petro dollar is key to continued American prosperity. It helps finance the prolificacy of the American politician without controls and is key to its prosperity.
The day the world gets off the dollar standard that is the day when the American economy and prosperity will be set 100 years backward. Sadly the American politicians don’t care the responsibility they are saddling the baby boomers grandchildren. It is these grandchildren that will be paying the price of this irresponsiblity.
if racism and bigots are operating above the surface now it is hard to imagine what will happen when the economy tanks and it is unable to provide a living to a larger part of the America population.
Darshan Veershetty
Relying on the federal reserve’s United States Dollar as the reserve currency will always be unsustainable in the long run not only for American economy but also for world economy. There has to be a baseline conversion of a separate exchange currency (not belonging to any country) set by an international body that is governed by something like the United Nations.
Paulo Gormando
My two cents or bitcoins.
The way that the US has been printing currency (quantative easing) leads me to believe that the era of the US dollar is seeing it’s waning years. I am not in favour of the chinese yuan but with an economy approaching 13 trillion, the Chinese are going to be challenging the US soon as an alternative currency.
BTW, military might is just not enough to sustain a currency. Case in point, USSR.
Kenneth DePrima
The dollar will soon be replaced by the Chinese Yuan. The democrat’s a helping the Chinese get this done. Keep wasting money guys.
Roxolan Tonix
I stopped reading because the opening statement alone was diabolically false.
I always advocate taking a basic economics class. The “reserve currency” is a result of the 1944 Bretton Woods Agreement, establishing an international monetary policy with the gold-backed dollar at the center. This was officially disbanded in 1976 when USD went off the gold standard, so technically, there is no “reserve currency” anymore, but the term is still applied to the dollar as it continues to be the most trustworthy and liquid asset in terms of store of value.
Governments like to hold the dollar in their treasuries for this reason, and this is what the dollar’s share looks like over time:
This is not something the US can control with tanks or gunships, neither does it need to, as the significance of it is always wildly overblown.
Roufa Ba
Since the end of World War II, the US dollar has been the world’s reserve currency. If the dollar collapses, so will the whole international monetary system. No other currency has the deep, liquid asset pools required to complete the task.
Optimists have long maintained that there is nothing to be concerned about—that trust in the dollar would never be genuinely undermined, no matter how high our national debt or how dysfunctional our government becomes. However, in recent years, the dangers have become too great to ignore. While Washington is stuck in a rut, unable to make progress on long-term issues, our main economic rivals—China, Russia, and the Middle Eastern oil-producing nations—are doing everything they can to destroy US monetary hegemony. The following are some possible outcomes: Financial warfare is a term used to describe a conflict in Deflation. Hyperinflation. The stock market has crashed. Chaos.
