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- This article describes the ideas of Henry C.K. Liu. For the topic of Jean Gabriel's book The Dollar Hegemony: Dollar, Dollarization, and Progress (2000), see dollarization.
Dollar hegemony is the hypothesized monetary hegemony of the US dollar in the global economy. Henry C.K. Liu popularized the term in a widely circulated and quoted[citation needed] article "Dollar Hegemony has to go" in Asia Times, April 11, 2002. The article was quoted by William Clark [1] in January 2003, Immanuel Wallerstein of the Fernand Braudel Center on June 1, 2003 [2], Greg Moses [3], James Robertson in April 2004 [4] and subsequently by many others.
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Definition
The term describes a geopolitical phenomenon of the 1990s in which the U.S. dollar, a fiat currency, became the primary reserve currency internationally. Three developments allowed dollar hegemony to emerge over a span of two decades.
- The Bretton Woods regime established in 1945 a fixed exchange rate regime based on a gold-backed dollar. The US did not view cross-border flow of funds necessary or desirable for promoting trade or economic development. Due to negative consequences accruing due to the Triffin dilemma, in 1971 President Richard Nixon abandoned the Bretton Woods regime and suspended the dollar's peg to gold as U.S. fiscal deficits from overseas spending caused a massive drain in U.S. gold holdings.
- The second development was the denomination of oil in dollars after the 1973 Middle East oil crisis; see petrodollars.
- The third development was the emergence of deregulated global financial markets after the Cold War that made cross-border flow of funds routine.
A general relaxation of capital and foreign exchange control in the context of free-floating exchange rates made speculative attacks on the exchange rates of currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony in the 1990s.
- All central banks have since been forced to hold more dollar reserves than they otherwise need to ward off sudden speculative attacks on their currencies in financial markets.
Mr Liu argues that thus "dollar hegemony" prevents the exporting nations from spending domestically the dollars they earn from the U.S. trade deficit and forces them to finance the U.S. capital account surplus, thus shipping real wealth to the U.S. in exchange for the privilege of financing U.S. debt to further develop the U.S. economy.
It should be noted that most of the above paragraph describes a controversial point of view. However, at the end of the 20th century it was for the most part undisputed that the US dollar is the most important reserve currency in the world. As of 2007[update], it still has the largest share (65.7%) of foreign reserve holdings, with the euro some distance behind at 25.2%.[1] However since 2000, the dollar share is falling and the euro share is rising, though the trend is very gentle.
See also
Related concepts
References
- ^ See table at Euro#A new reserve currency
External links
- Dollar Hegemony Has Got To Go by Henry C.K. Liu, Asia Times Online, April 11, 2002
- The Coming Trade War, Part 2 Dollar hegemony against sovereign credit by Henry C.K. Liu, Asia Times Online, June 24, 2005
- China steady on the peg by Henry C.K. Liu, Asia Times Online, December 1, 2004
- House Member Ron Paul on the Dollar hegemony
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