When it comes to the United States currency, there are many different factors involved. While it would be difficult for most people to understand every detail, it is important for some things to be researched. One of these is the US dollar hegemony, which is the hypothesized monetary hegemony of this currency within the global economy. The term was actually made popular by Henry CK Liu who was quoted in 2002 by stating in the Asia Times publication that “Dollar hegemony has to go.” This particular article and the term “US Dollar Hegemony” would be repeated many times over by other people dealing with world finances.
The meaning of “US Dollar Hegemony” is a geopolitical phenomenon that was associated with the 1990s. At that time, the US dollar was what experts termed as a “flat currency”, meaning it was the main reserve currency on an international basis. For the dollar hegemony to develop over the course of 20 years, three developments occurred, which are listed below:
1. Bretton Woods System – The first was the Bretton Woods System, which is no longer in use but in 1945; it was established as a type of fixed exchange rate system using the dollar backed by gold. However, the United States did not think it was necessary or even desirable for funds to be moved across so many borders as a means of promoting economic development or trade. Because the Triffin dilemma produced negative consequences, President Richard Nixon dropped the Bretton Woods System in 1971 and put the dollar’s peg to gold on hold for deficits relating to spending overseas. With this, a significant drain for gold holdings in the United States resulted.
2. Oil Crisis – The second development linked to the US Dollar Hegemony was the denomination of oil in the form of dollars after the world experienced the Middle East oil crisis in 1973.
3. Deregulations – The last development for the US Dollar Hegemony phenomenon was the deregulation of global financial markets once the Cold War ended, making flow of funds across borders a standard routine.
When free floating exchange rates associated with capital and foreign control were relaxed, attacks on currency exchange rates was common. Allowing the US Dollar Hegemony to emerge in the 1990s was allowed by the three developments mentioned. Since that time, all central banks have been pressured into holding a greater amount of dollar reserves than they would otherwise need to fight off currency attacks in various financial markets.
The bottom line is that Mr. Liu states that the US Dollar Hegemony is designed to stop exporting nations from spending dollars domestically earned from the United States trade deficit. The US Dollar Hegemony is also meant to force exporting nations to finance capital account surplus in the US, which would allow for real wealth to come into the country. In exchange for this, the privilege of financing debt of the United States to develop the economy a strengthen it.
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