Dollar Hegemony

Monetary Hegemony or Dollar Hegemony is the term coined by Michael Hudson in his work Super Imperalism which was first published in 1972. Super Imperialism describes not only the asysemetrical relationship that the US dollar has to the global economy, but the strictures of this hegemonic edifice that support it, namely the IMF and the World Bank. The US dollar continues to underpin the world economy and is the currency in which international transactions are usually carried out. The international trade in oil, for example, is in U.S dollars.

Historically dollar dominance emerged in the Bretton Woods agreement after WWII. It set fixed exchange rates between gold and other currencies. But only the United States had large enough gold reserves to establish international currency.

During the 1970s, the price of gold went from $35 to $800 per ounce as a result of a perceived "dollar bankruptcy". During the Vietnam War, the US increased its deficit and printed more dollars which had the effect of undermining faith in its currency. Also, in 1971 Nixon canceled convertibility of dollars to gold. The dollar maintained its status due to: agreements with Saudi Arabia and OPEC to trade oil only in dollars, the largest stock market NYSE and many other commodities were being traded in dollars, and large credits for developing countries were also dollar denominated. Other countries were thus forced to maintain dollar reserves to buy commodities and maintain financial credibility (countries with small reserves compared to their debt are easy target for speculative attacks). The United States benefited from seigniorage with each created dollar.

The European Union's euro could be considered by some as an attempt to end the dominance of the dollar.

Source: Wikipedia