THEAMERICANDOLLAR

By Liam Barbieri '25

The US Dollar (USD) has coiled itself tightly around the global economy and is slowly trying to strangle it into submission Officially, it’s the world’s “reserve” currency, as almost all central banks use it for a major part of their transactions and invest large amounts of their equity into the Dollar However, that is merely the tip of the iceberg known as the US Dollar

The dominance of the US Dollar in the currency market initially began in 1914, the exact year when the first dollar was printed At the time, countries would tie their currency to the gold standard, in a measure to stabilize foreign exchange and maintain a relatively uniform price movement. Moreover, due to the British Empire’s vast international influence at the time, the British pound held the throne as a common currency which most nations were comfortable using.

This allowed for the USA to receive an influx of payments from the European powerhouses which allowed its economy to boom during the war, causing it to ascend as the largest economy in the world, surpassing Britain. A similar situation occurred during World War 2, and at that point the USA had amassed a gargantuan gold reserve which became problematic for the rest of the world, as they were not able to return to the previous goldcurrency system Therefore, the Allied powers met in 1944 to formulate a solution where no country would be disadvantaged due to the fragile currency markets. At the conference, it was decided that the best possible solutions would be to use the US Dollar as the world reserve currency as per its coupling with the gold standard, and its prevalent stability.

Nevertheless, during World War 1, Britain, alongside many of its European compatriots, found itself having to borrow money for the first time, and opted to buy the greenback, since the USA was their main supplier of military materials. Furthermore, due to the hefty military costs incurred by the nations, they unbinded their currencies from the gold standard, as to allow for more spending and printing more money without being constrained by the latter.

Subsequently, the USA’s control over the world’s economy only continued to grow, as various agreements between the US and OPEC were signed in 1971 and 1973, which declared that the large majority of oil buying and selling would be quoted in Dollars. This decision gave birth to the petrodollar system, where countries would be forced to pay for imported oil with the dollar, hence allowing the dollar to become even more indispensable for the global economy.

On a more recent note, the US Dollar has become a wrecking ball in the currency market, as global inflation has caused central banks to hike rates, and the US Dollar became a safe haven for foreign investments which scrambled to buy US Dollars.

Moreover, with the freefall of the British Pound caused by Liz Truss’ policies, the greenback was able to consolidate its hold over the other currencies, which in some cases even forced central banks to intervene in a buy-back operation to save their respective currencies from losing almost all of their value in comparison to the US Dollar The most obvious example is the Nippon Ginkō (Bank of Japan), which had to intervene in the USD:JPY exchange due to the severe lack of confidence in the yen in front of the USD, marking its first intervention in the foreign exchange market since 1998.

Furthermore, the People’s Bank of China has been taking similar measures to stop the yuan from weakening too extensively, as China direly needs to not lose financial ground to the US, especially during such a tense political period, where the USA’s foreign policy in regards to Taiwan and the technology sector has created several rifts in their bilateral relations

As long as the US Dollar remains the world’s reserve currency, the USA will be an unbeatable financial presence, as its influence is so deeply rooted in the global economy that by weeding it out, we would be causing irreparable damage to the financial state of the world Furthermore, no possible substitute for the US Dollar has been found, as other currencies aren’t as stable or liquidated as the dollar, and options such as cryptocurrencies are still much too undeveloped for them to be a viable solution due to their extreme volatility Hence, the US Dollar is going to remain the king of currencies, and no one is going to challenge its throne.