The US Dollar as the Global Reserve Currency: Implications for US Hegemony

1.IntroductionAs the global reserve currency since the end of World War II, the US dollar has been intrinsic to the functioning of the world economy. The US dollar is so fundamental to the global financial system that the political and economic ramifications of the dollar's reserve currency status are rarely considered. The US dollar as the global reserve currency is a subject of critical importance, both to the understanding of the international financial system, and the wider political and economic ramifications of the status accorded to the dollar. As F. William Engdahl has explained,Maintaining the role of the US dollar as world reserve currency has been the foremost pillar of the American Century since 1945, related to but more strategic even than US military superiority. How that dollar primacy has been maintained to now encompassed the history of countless postwar wars, financial warfare, debt crises, and threats of nuclear war to the present. (Engdahl 2008)This article contends that the dollar as the global reserve currency has been crucial to the operations of US hegemony during the post-World War II period. To investigate this issue, the theoretical perspective of World-Systems Analysis expounded by Immanuel Wallerstein (2011) is employed. The article also draws upon the theoretical work of Henry C.K. Liu who developed the term "US dollar hegemony" (Liu 2002). In this article, we argue that US planners from the Council on Foreign Relations (CFR) in conjunction with State Department officials pursued a deliberate plan to make the United States a global hegemonic power (Shoup and Minter 1977) and the dollar was the central currency of that hegemony (Engdahl 2008, 213). We demonstrate how the dollar evolved into a petro-currency through Nixon's Saudi decision of 1973. The dollar was placed on the trajectory that it would follow for decades and became the source of conflict against the United States by its geo-political competitors (Durden 2014). We conclude by arguing that newly emerging strategic competitors to US hegemony such as China, Russia and Iran are growing dissatisfied with the current oil trading arrangements. We do not argue that any of these nations are remotely in contention to replace the United States as world hegemon. However, we suggest that a significant blow could be dealt to the ability of the United States to maintain its hegemonic status should oil trading be carried out in currencies other than the dollar (Koenig 2015). If this were to occur to a large enough extent, the ability of the United States to exercise its foreign policy would be severely curtailed (National Intelligence Council [NIC] 2012). It would also demonstrate the critical importance of the US dollar in the exercise of US hegemony. In this article, we would like to move the dollar to the forefront of debate in understating how US hegemony in the postWorld War II period is constructed and maintained and its critical importance in a hegemonic US global agenda.2. The Political and Economic Context of the Founding of the US Dollar as the Global Reserve CurrencyThe post-World War II era represented a radical paradigm shift in US foreign policy. This policy shift was defined by the "Grand Area" concept developed by the CFR in conjunction with planners from the US State Department. This programme saw the United States pursue a global hegemonic project (Shoup 1975). This pursuit was economic in nature; it would require binding together disparate regions of the world into a financial system that would centre upon, and serve the interests of, the US economy (Shoup and Minter 1977). US imperialism was the result of extensive planning on the part of the US government (Panitch and Gindin 2012, 72). The Bretton Woods Conference held in 1944 was the forum where a US-centric world system was instituted. The systems, institutions and arrangements that facilitate US hegemony were established at the Bretton Woods Conference. …