Dollar Dominance

The U.S. dollar became the world’s dominant currency in the 1970s after the collapse of the Bretton Woods system. Even though the U.S. was hesitant about the responsibilities that came with this, the dollar’s global dominance gave the country immense power. Today, however, there are concerns that this dominance could be fading. If the dollar loses its top position, the U.S. will have less control over global finance, which could reshape the world economy.

For now, the dollar remains strong, but its future depends on political and economic changes. One major challenge is that experienced policymakers in Washington are leaving their positions, while tech leaders like Elon Musk openly criticize government institutions. This loss of expertise could make economic decision-making more reactive and less strategic, leading to unpredictable outcomes.

Two new books explore the power of the dollar and what its dominance means for the U.S. and the world. King Dollar by Paul Blustein looks at the history of the dollar, its competitors, and how it has been used in economic conflicts. Chokepoints by Edward Fishman focuses on how the U.S. has used economic sanctions—enforced through the dollar’s strength—as a tool of foreign policy.

Fishman’s Chokepoints explains how economic warfare works in today’s world. Though Fishman was involved in many of the events he describes, he keeps himself out of the story. He presents facts rather than personal opinions, making the book feel more like a historical account. However, he does express some views, such as believing that the 2014 sanctions against Russia were too weak and may have encouraged Vladimir Putin. He also suggests ideas like creating an economic war council to improve U.S. strategy.

Despite these insights, Fishman does not deeply analyze whether sanctions have been effective.

One of Fishman’s key warnings is that if the rule of law in the U.S. weakens or the Federal Reserve loses its independence, the dollar’s appeal could decline. This is a real possibility today.

For a broader perspective, readers may enjoy Blustein’s King Dollar. Unlike Fishman, Blustein openly shares his opinions, making his book more lively and engaging.

Blustein explains why the dollar is so widely used, the advantages of its dominance, and the downsides—such as making U.S. goods more expensive and less competitive globally. Despite these challenges, he argues that the benefits outweigh the negatives. He also notes that experts have incorrectly predicted the dollar’s decline in the past, such as in the 1970s and early 2000s when some thought the Euro would take over. He believes the dollar’s position is very strong because alternative currencies are weak. He even describes its dominance as “almost impregnable.”

Even if the dollar’s role shrinks, Blustein is not too concerned. He suggests that having multiple strong currencies could improve financial stability by providing investors with more safe options during economic crises. However, there is another side to this argument. More safe havens could also lead to sudden capital movements, increasing instability. The Great Depression showed how unpredictable money flows in a multi-currency world can cause major economic problems.

While Blustein is optimistic about the dollar’s future, things could be different this time. The power of the dollar also creates risks—its dominance makes sanctions very effective but overusing them pushes other countries to find alternatives. Many nations targeted by sanctions are already working to reduce their dependence on the dollar to protect themselves.

Replacing the dollar is difficult, but it may happen in the long run. Growing political instability in Washington could make the dollar less attractive to U.S. allies. While no single currency is likely to take its place, a mix of alternatives—including cryptocurrencies—could emerge. Digital currencies are already being used to bypass sanctions and even have support from the U.S. president.

Blustein argues that the greatest threat to the dollar is not competition from other currencies but the U.S. itself. If Washington weakens key factors that make the dollar strong—such as the rule of law, stable government policies, and trust in U.S. treasury bonds—the dollar’s decline will be the least of America’s worries. If the U.S. falls into chaos, there will be far bigger problems than losing the dollar’s dominance.

The future of the dollar is uncertain. It remains the world’s top currency today, but how long that will last depend on political stability, economic policies, and how other countries respond to U.S. actions. The world may soon see a shift in the global financial system, and whether the U.S. is prepared for it remains to be seen.

SAJIKUMAR

https://sajikumar.co.in