Comment & Debate
“Traditionally, each independent nation had its own currency as a symbol of sovereignty, but in a globalizing world national currencies have been weakening or even disappearing. The US dollar has been taking over as the world’s currency of account. Neo-liberal open markets and rapid currency conversion have reinforced the dollar’s role since the mid-1970s. Much trade is now dollar-based, countries prefer to hold their central bank reserves in US dollars, and private companies as well as wealthy citizens often hold dollars or dollar-denominated assets. The United States derives great economic and political power from this dollar hegemony. During the 1990s, dollarization accelerated. A number of countries pegged their currencies to the dollar or even adopted the dollar outright as their national currency, hoping that this would solve inflation problems. Dollar-denominated notes, especially $100 bills, grew in popularity with individuals as well as criminal networks, becoming the US’s largest export. But huge US trade imbalances and federal budget deficits undermined the dollar and eventually knocked down its value in international currency markets. Further erosion of the dollar could undermine and reverse decades of dollarization, but a globalizing world still needs a strong common currency. If the dollar weakens further, alternatives might emerge. But for the moment, the (weaker) dollar still is King. “ [1]