Dollar hegemony
Encyclopedia
- This article describes the ideas of Henry C.K. Liu. For the topic of Jean Gabriel's book The Dollar Hegemony: Dollar, Dollarization, and Progress (2000), see dollarizationDollarizationDollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency. The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.The biggest economies to have...
.
Dollar hegemony
Hegemony
Hegemony is an indirect form of imperial dominance in which the hegemon rules sub-ordinate states by the implied means of power rather than direct military force. In Ancient Greece , hegemony denoted the politico–military dominance of a city-state over other city-states...
is the hypothesized monetary hegemony
Monetary hegemony
Monetary hegemony is an economic and political phenomenon in which a single state has decisive influence over the functions of the international monetary system...
of the US dollar in the global economy
International finance
International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, global financial system, and how these affect international trade. It also studies international projects, international investments and capital flows, and trade deficits. It includes...
. Henry C.K. Liu popularized the term in the article "Dollar Hegemony has to go" in Asia Times, April 11, 2002. The article was quoted by William Clark, Immanuel Wallerstein of the Fernand Braudel Center, Greg Moses, and James Robertson.
Definition
The term describes a geopolitical phenomenon of the 1990s in which the U.S. dollar, a fiat currency, became the primary reserve currencyReserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...
internationally. Three developments allowed dollar hegemony to emerge over a span of two decades.
- The Bretton Woods systemBretton Woods systemThe Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
established in 1945 a fixed exchange rate regime based on a gold-backed dollar. The US did not view cross-border flow of funds necessary or desirable for promoting trade or economic development. In response to the accrual of negative consequences from the Triffin dilemmaTriffin dilemmaThe Triffin dilemma is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives...
, President Richard NixonRichard NixonRichard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
abandoned the Bretton Woods regime in 1971 and suspended the dollar's peg to gold as U.S. fiscal deficits from overseas spending caused a massive drain in U.S. gold holdings. - The second development was the denomination of oil in dollars after the 1973 Middle EastMiddle EastThe Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
oil crisis; see petrodollarPetrodollarA petrodollar is a United States dollar earned by a country through the sale of petroleum. The term was coined by Ibrahim Oweiss, a professor of economics at Georgetown University, in 1973...
s. - The third development was the emergence of deregulated global financial markets after the Cold WarCold WarThe Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...
that made cross-border flow of funds routine.
A general relaxation of capital and foreign exchange control in the context of free-floating exchange rates made speculative attack
Speculative attack
A speculative attack is a term used by economists to denote a precipitous acquisition of something by previously inactive speculators. The first model of a speculative attack was contained in a 1975 discussion paper on the gold market by Stephen Salant and Dale Henderson at the Federal Reserve Board...
s on the exchange rates of currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony in the 1990s.
At the end of the 20th century it was for the most part undisputed that the US dollar is the most important reserve currency in the world. , it still has the largest share (65.7%) of foreign reserve holdings, with the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
some distance behind at 25.2%. However since 2000, the dollar share is falling and the euro share is rising, though the trend is very gentle.
See also
Related concepts- Dollar diplomacyDollar DiplomacyDollar Diplomacy is a term used to describe the effort of the United States—particularly under President William Howard Taft—to further its aims in Latin America and East Asia through use of its economic power by guaranteeing loans made to foreign countries. The term was originally coined by...
- Iranian Oil BourseIranian oil bourseThe Iranian Oil Bourse International Oil Bourse, Iran Petroleum Exchange Kish Exchange or Oil Bourse in Kish is a commodity exchange which opened on February 17, 2008. It was created by cooperation between Iranian ministries, the Iran Mercantile Exchange and other state and private institutions...
- Monetary hegemonyMonetary hegemonyMonetary hegemony is an economic and political phenomenon in which a single state has decisive influence over the functions of the international monetary system...
- Petrodollar warfarePetrodollar warfareThe phrase petrodollar warfare refers to a hypothesis that one of the unknown, driving forces of United States foreign policy over recent decades has been the status of the United States dollar as the world's dominant reserve currency and as the currency in which oil is priced. The term was coined...
- Triffin dilemmaTriffin dilemmaThe Triffin dilemma is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives...
- Nixon ShockNixon ShockThe Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...
External links
- Dollar Hegemony Has Got To Go by Henry C.K. Liu, Asia Times Online, April 11, 2002
- The Coming Trade War, Part 2 Dollar hegemony against sovereign credit by Henry C.K. Liu, Asia Times Online, June 24, 2005
- China steady on the peg by Henry C.K. Liu, Asia Times Online, December 1, 2004
- House Member Ron Paul on the Dollar hegemony
- Primacy of Dollar and Global Inequality by Niraj Kamal