A less-respected U.S. dollar will have major implications for world trade and American consumers
U.S. economic power is founded, in part, on the primacy of its currency. While this role has been questioned at various times over the past half a century, current geopolitical developments pose the most serious challenge yet to the U.S. dollar’s dominance.
In rejecting, the idea of a single, global reserve currency proposed by economist John Maynard Keynes, the Bretton Woods conference in 1944 enshrined American pre-eminence by requiring national currencies to be pegged to the U.S. dollar, which in turn was fixed to the price of gold. The Nixon administration’s unilateral removal of the linkage to gold as a result of the decline of U.S. power ironically strengthened the position of the dollar, which continued as the world’s reserve currency.
Today, the dollar’s market share is unprecedented. It accounts for 96% of trade in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world. Only in Europe, where the euro is dominant with a 66% share, is the U.S. dollar not the preferred trading currency.