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If 2020 confirmed one thing, it was the centrality of the dollar to the global economy. U.S. hegemony may already have passed us in a political and strategic sense, but U.S. financial influence is proving more enduring. This is reassuring in the sense that the U.S. Federal Reserve has once again acted as a responsive and generous steward of the dollar-based financial system. But it is also a cause of puzzlement and frustration.
While China and Russia experiment with alternatives to the dollar-based payment system, in Europe the buzzword of the day is “strategic autonomy.” Given the increasing aggression of Washington’s financial sanctions, compounded by the capriciousness of the presidency of Donald Trump, this is hardly surprising. It is an obvious reaction to the weaponization of interdependence.
It is far from obvious to critics that dollar hegemony is an unalloyed blessing. Inequality, deindustrialization, and the loss of well-paid and secure blue-collar jobs can all be blamed on the dollar’s strength. In that sense, the dollar’s standing and Trumpian populism are not so much contradictions as functionally interconnected. One helped cause the other.
Little wonder that visionary investors such as Ray Dalio of Bridgewater, the world’s largest hedge fund, advise anyone who will listen to prepare for a future beyond the dollar. In explaining his determination to back China, Dalio points to the rise and fall of other financial empires, a recurring cycle that stretches back over half a millennium.
But are history’s lessons really that obvious? The dollar has been prominent in the world economy for just over a century, a period in which we have seen the largest explosion of population, economic activity, and state violence to date, a complete rupture on many metrics with any previous epoch in the history of our species. It’s fitting, therefore, that what we sometimes describe as a dollar system is not so much a well-defined and clearly delineated institution than a constantly evolving assemblage tracking the staggering transformations of the real economy and the international power system. Periods of coherence in which monetary and financial policy were neatly aligned with the grand strategic posture of the American empire were brief. Contradictions are the norm, and those of the current moment are by no means the most egregious. It is a history punctuated by crises. Talk about the end of dollar hegemony started half a century ago, in the 1970s, the period during which Foreign Policy was founded. Yet the dollar has continued to dominate the world economy.
What allows it to do so is improvisation and action on the part of U.S. policymakers and businesses and the choices of their counterparts around the world. In gauging the future of the dollar as the world’s key currency, history should indeed be our guide. But not history in the sense of grand lawlike cycles. Our world is too complex, too protean, too radical for that. The history that we need to understand is a tangled skein of discreet actions and innovations. It is a history of power and money, in which the future is not foreordained but still very much in play.