China and the Credit Crisis: The Emergence of a New World Order

CHAPTER 5

An End to Dollar Dominance?

No bigger symbol exists of America’s place in the world than the widespread use of the US dollar in the world’s financial capitals, in the pricing of oil, gold, and every other major commodity, and in international trade. Suggestions that the dollar’s role as the world currency should cease strike at the heart of US global dominance. The dollar has been the payment standard for longer than almost everyone alive today can remember. Its supremacy as a medium of pricing, a store of value, and a means of payment for trade and finance is taken for granted. Although academics, currency experts, and central bankers from John Maynard Keynes onwards have recognized the problems inherent in using one country’s currency as a world currency, the dollar has continued in its global role for over 60 years, because the perceived benefits to be gained from changing to a new, better, but untried system have not been large enough to outweigh the costs of continuing with a system that has worked most of the time. Needless to say, a change to a monetary system which did not have the dollar at its core would also have to overcome resistance from the United States, who benefits considerably from the dollar’s world currency role.

The 2008 crisis originated in the American financial system. The financial instability that caused the crisis was partly the result of the dollar’s role of world currency. This role was also important in quickly transmitting the effects of ...