Dollar hegemony has long enraged governments around the world. In the 1960s the French complained of America’s “exorbitant privilege”. Forty years later, as the global financial crisis wreaked havoc, China called for a shift away from the dollar. More recently, Brazil’s president, Luiz Inácio Lula da Silva, spoke for many when he asked with derision, “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?” The unspoken answer was that an American “empire” had foisted the dollar on a prostrate world.
In fact, by the time President Richard Nixon cut the dollar’s link to gold in 1971, terminating the last vestiges of the gold standard, US officials were quite sick of dollar dominance. The currency’s role had seemed a burden under the postwar monetary system agreed at Bretton Woods in 1944 — from the requirement to convert dollars into gold to the exchange rate rigidity that came with its central position — and now, amid the economic tumult of the 1970s, it seemed a danger. The administration, as one senior White House economist said at the time, needed to “eliminate” the dollar’s reserve currency role. In the heart of the dollar empire, policymakers developed plans to downgrade the greenback’s status and make it more like any other currency.
And yet, the dollar remained king through the 1970s and beyond. The reasons were many, not least that the international community was divided over how to reform the system: the potential alternatives were few and flawed; inertia supported the status quo. Washington, unable to free itself from the responsibilities of monetary hegemony, realised that being king was perhaps not so bad. With exchange rates floating and the gold standard gone, the US could print dollars and send them around the world without having to give an ounce of gold in return.
The dollar’s post-Bretton Woods triumph was a pivotal point in economic history. Ever since, the world has been on a dollar standard, for good and — according to Lula et al — for ill. Precisely what this dominance entails and the powers it grants are at the core of two new books. In King Dollar, Paul Blustein takes a broad look at the greenback, exploring its history, its competitors, and its use as a weapon of economic war. In Chokepoints, Edward Fishman zooms in on the geoeconomics, studying the growing role sanctions, largely underpinned by dollar dominance, have played in US foreign policy.
While officials in the 1970s were at first hesitant about dollar dominance, they soon welcomed the immense geopolitical leverage it offered. Since access to the dollar system was essential for governments and businesses around the globe, Washington could punish adversaries without firing a bullet by blocking their ability to transact in dollars. As Fishman explains, when Iranian students stormed the US embassy in Tehran in 1979, President Jimmy Carter imposed sanctions in the first application of the International Emergency Economic Powers Act, the 1977 law that provides sanctioning authority to this day. Carter’s response included a freeze on some $12bn in Iranian assets, a blow that ultimately helped bring Tehran to the negotiating table and the hostage crisis to an end. The dollar was no longer just a currency but a weapon that could augment US power.
In the decades since, Washington’s reliance on that weapon has only grown. Policymakers have embraced sanctions as a go-to tool, transforming US foreign policy and the global economy in the process. This ever-widening battle is the focus for Fishman, a scholar at Columbia University and former government official. He divides the age of economic warfare into four phases: the campaign against Iran’s nuclear development; the response to Vladimir Putin’s first incursion into Ukraine; the technological battle with China; and the retaliation against Russia’s full-scale invasion of Ukraine in 2022. Economic warfare is the new normal, and Fishman sees no signs of a reduction in tensions, with the world engaged in a “scramble for economic security that redraws the geopolitical map and ends globalisation as we know it.”
Chokepoints is a masterful narrative of US economic warfare in the 21st century. While its division into more than 60 chapters — many just four or five pages — can make for choppy reading at times, Fishman’s clear and thoughtful writing weaves the story together. It helps that the book is about people as much as policy. Indeed, it is a paean to technocracy. Smart women and men, dedicated to public service, work long hours at the State and Treasury departments in high-stress situations, enduring gruelling international negotiations — all for relatively low pay. They design innovative solutions to seemingly intractable problems, devising, for instance, a price cap on Russian oil to limit Moscow’s energy revenues while keeping Russian production flowing.
One can only despair that few of these public servants will be left after Elon Musk’s coders and trollers finish eviscerating the bureaucracy. The brain drain in Washington will have disastrous effects for years, if not decades. At a minimum, the approach to economic warfare will become much less strategic and far more heavy-handed. Fishman already worries that “American economic warriors often shoot from the hip, forced to react to crises without much advance planning.”
Though Fishman worked on some of the issues he chronicles, he removes himself from the narrative — there is no hint that he was ever in the room, debating a point or shaking his head in disbelief. This approach grants the book an authoritative tone as a work of history, but I wish he had not erased himself so thoroughly. He rarely provides his opinion on what he recounts. Fishman does conclude that the sanctions against Russia after its annexation of Crimea in 2014 were too weak, thereby emboldening Putin, and provides some recommendations, such as the establishment of an economic war council, but the book begs for more analysis. After all, the US’s record has been decidedly mixed. Putin’s butchery continues, China’s artificial intelligence sector is making rapid progress, rogue regimes in Iran, North Korea and Venezuela remain in power. The reader is left wondering whether sanctions have come up short because of strategic mistakes or design flaws, or if they never had a chance of accomplishing anything more.
Moving forward, the might of America’s economic arsenal hinges on continued dollar dominance. Fishman does not dwell on the matter, though he warns that erosion of the rule of law or the Federal Reserve’s independence could reduce the dollar’s popularity — possibilities that seem all too plausible today.
For a longer meditation on the dollar, readers would do well to turn to Paul Blustein’s King Dollar, an engaging account of the currency’s role over the past century. Contra Fishman, Blustein, a veteran economic journalist, does not shy away from expressing his opinions. The dedication sets the tone: “To my grandchildren, whom I will always love unconditionally, even if they grow up to like crypto.”
While much of King Dollar covers familiar ground, it is a lively distillation of a complex topic. Blustein details the factors propelling the currency’s use, the benefits of dominance, and the potential costs — most notably, that the dollar is stronger against currencies than it otherwise would be, reducing America’s competitiveness. He argues that dollar dominance is well worth these downsides and that today’s doomsayers are part of a long line of false prophets, from the eminent economist Charles Kindleberger declaring that “The dollar is finished as international money” in the 1970s to the forecasts of euro hegemony at the turn of the century.
Indeed, Blustein believes that the forces supporting the dollar are quite durable and the potential alternatives weak, making its dominance “almost impregnable”. Even if the dollar’s role attenuates, he is not too concerned. Financial stability might actually increase with more international currencies, he writes, because “a multipolar currency regime would create more safe havens to flee to during crises.”
Here, I would argue that Blustein is too sanguine. More havens to flee to can mean more flight; more flight can mean more instability. The volatile capital flows of the Great Depression made plain the dangers of a multipolar currency world.
But that is probably where we are headed. Despite Blustein’s confidence in the dollar, this time truly might be different. Currency dominance contains the seeds of its own undoing: it makes sanctions so potent that policymakers are tempted to use them more and more, thereby spurring the search for alternatives, and ultimately weakening both sanctions and dominance. Both current and potential future targets of sanctions are searching for non-dollar systems to hedge their risks.
Finding or developing alternatives to the dollar is not easy; over time, however, it seems inevitable. In addition, the dollar may become less attractive to allies as dysfunction in Washington intensifies. Though one clear alternative may not emerge, a variety of networks and currencies could, including, to Blustein’s likely horror, cryptocurrencies, which already facilitate sanctions evasion and now have the US president’s imprimatur.
In the 1970s, the dollar emerged from the rubble of Bretton Woods supreme, despite Washington’s unease at bearing such responsibility; a half-century later, the dollar might lose its status, despite Washington’s reliance on it for leverage. For those concerned about such a decline, a rather grim realisation may offer some comfort.
The greatest threat to dollar hegemony, Blustein argues, is that Washington might destroy the pillars underlying the currency’s appeal: rule of law, contract enforcement, government transparency, the unquestioned safety of US treasuries. If the dollar’s role fades because the US becomes a basket case, the currency’s degraded status, he writes, would be “the least of our worries.” So much else would be wrong that there would be little time to mourn king dollar’s demise. Perhaps we will find out how comforting this logic is sooner than we expect.
Chokepoints: How the Global Economy Became a Weapon of War by Edward Fishman, Elliott & Thompson £25/Portfolio $40, 560 pages
King Dollar: The Past and Future of the World’s Dominant Currency by Paul Blustein, Yale £25/$35, 320 pages
Max Harris studies the history of global economic governance and is the author of ‘Monetary War and Peace: London, Washington, Paris, and the Tripartite Agreement of 1936’
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