However, although outside people may want to diversify their assets and leave the dollar, They do not have a convincing alternative. So what could replace his hegemony?
The dollar has been the leading currency of the world for 100 years. However, the dollar itself replaced the pound of Szterling after World War I, when the power and wealth of Great Britain began to weaken. The United States does not decline like Great Britain at that time: according to the IMF, their participation in the nominal GDP of the world in 2024 amounted to 26 percent, compared to 25 percent. In 1980, taking into account China's economic growth during this period, this is an extraordinary achievement. The US is also at the forefront of global technological development and are the greatest military power. Their financial markets still remain the deepest and most liquid. In addition, 58 percent in the fourth quarter of last year global reserves were denominated in dollars, which is a decrease compared to 71 percent. In the first quarter of 1999, but significantly exceeds the share of the euro, which is 20 percent. According to the Macromicro analytical platform, 81 percent trade financing, 48 percent international bonds and 47 percent cross -border bank claims are still denominated in dollars.
So what could go wrong? In his work on the international system, the American economy historian Charles Kindleberger argued that the stability of the open world economy depends on the existence of the hegemonic power, which is ready and capable of ensuring basic public goods: open trade markets, stable currency and lender of the last instance in a crisis situation. United Kingdom met all these conditions until 1914. After 1945, the United States was to take over this role. In the meantime, however, Great Britain was unable to provide these goods, and the US did not want to do it. The effects were catastrophic.
The era of dollar hegemony was full of shocks. The post -war economic recovery in Europe and Japan undermined the system of permanent exchange rates agreed in Bretton Woods in 1944. In 1971 Richard Nixon, the president most similar to Trump, devalued the dollar. This, in turn, led to high inflation, which ended only in the 1980s. It resulted in the introduction of liquid currency courses and the creation of a European exchange rate mechanism, and then the euro. Although economists were willing to think that foreign currency reserves would cease to be important in the world of liquid courses, numerous financial and currency crises, primarily the Asian crisis in the late 1990s, showed something completely the opposite. Federal reserve loans were also still important, especially during the financial crisis in 2008–2009.
In short, Kindleberger's conditions are still valid. It is also important that the external effects of the network are conducive to the appearance and maintenance of dominant world currencies, because all users use the same currency and will continue to do so if they have such an opportunity. But what happens if the hegemon uses all available economic resources, including financial sanctions to achieve its goal? What happens if the hegemon threatens an invasion of friendly countries and encourages despots to invade friendly countries? What happens if the hegemon undermines its own fiscal and monetary stability and the institutional foundations of its economic success? What happens if his leader is a tyrant without rules?
Continuation of the material under the video
Three alternatives
Then both countries and private individuals will consider alternative solutions. The difficulty is that no matter how unsatisfactory hegemony may be, Alternatives seem worse. Renminbi [oficjalna waluta Chińskiej Republiki Ludowej] It can be the best currency for trade with China. However, China uses capital control and have unleashed domestic capital markets. This reflects the strategic priority of the China Communist Party, which is both economic and political control. It also seems likely that Beijing will use the means of economic coercion. Therefore, China cannot offer liquid and safe assets that historically provided the United States.
The euro does not have these disadvantages of Renminbi. Could it not replace the dollar, at least partly, as Helene Rey from London Business School claims? Yes, it could. But The euro also has its drawbacks. The euro area is crushed because it is not a political union, but rather a sovereign state club. This political fragmentation also manifests itself in financial and economic fragmentation, which limits innovation and growth. First of all, the EU is not a hegemonic power. Its attractiveness may outweigh the attractiveness of the United States in the worst situation, but it cannot compare the US at its best.
Therefore, we have a choice between three alternatives, while other options – a global currency or world based on cryptocurrencies – are certainly unthinkable. The first option is the transformation of China or the euro area and the appearance of one of them as a hegemonic currency emitter. The second option is a world with two or three competing currencies, each of which would dominate in a different region. However, the network effect would cause unstable balance, because people would throw themselves on one currency and then on the other. This would be more similar to the situation from the 1920s and 1930s than to anything that has taken place since then. The third option is further dominance of the dollar.
What kind of dollar hegemony could it be? In an ideal case, the United States would again appear as a trustworthy country. However, this is less and less likely, taking into account the damage currently caused in the country and abroad. In the kingdom of the blinds, one -eyed is a king. Similarly, even a defective currency can still rule the monetary world, taking into account the lack of high quality substitutes. Trump would like such a world. However, most of us are not.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
