While the rest of the planet operates on debit cards and cash ledgers of IOUs, the United States wields the monetary equivalent of an Amex Black card.
For nearly a century, since the rise of the U.S. dollar as the world’s reserve currency, Uncle Sam has been able to finance the world’s largest military, which ensures the ongoing victory of the free world over communists and jihadists, two-thirds of the developed world’s medical research and development, mankind’s exploration of space, nearly half of the world’s humanitarian aid, and our own vast cradle-to-grave welfare state. And we spend on all of this while racking up a debt-to-GDP ratio of 100%, at interest rates so historically low they would have made the most legendary absolute monarchs and emperors of the past weep with envy.
Although French Finance Minister Valéry Giscard d’Estaing would later whine that the United States had been gifted its status as holder of the world’s reserve currency by the bloodied Allied powers on bended knee at Bretton Woods, the truth is that the greenback’s ascent began long before 1944.
The British Empire technically peaked in terms of territory by the end of World War I, but that is also when it began to cede the pound sterling’s status as the world’s reserve currency. While the rest of the West fell deeply into debt after the Great War, the United States became the world’s largest creditor, organically exporting dollars across the globe through its bond market, gold convertibility, and skyrocketing stock exchange. In the first fifth of the 20th century, the dollar went from comprising 0% to nearly a quarter of the world’s foreign currency reserves. Bretton Woods made the shift official, tying the rest of the world’s currencies to the dollar and the dollar to gold. The dollar’s dominance has persisted for nearly a century, a tenure rivaled only by the pound’s previous reign, the pre-revolutionary French franc, and the Spanish silver dollar of the Age of Exploration.
But the implosion of the dollar has not been avoided for lack of trying by our hubristic politicians. Richard Nixon famously blew up the gold standard in hopes of devaluing the dollar when he decided not to undo Lyndon B. Johnson’s failed Great Society spending sprees. Yet, by God’s grace and America’s excellence, the greenback had already become so entrenched in global finance, and as the petrodollar medium of exchange, that no viable alternative existed.
Joe Biden’s absurd alienation of our Saudi allies and kowtowing to China nearly saw the BRICS bloc succeed at overturning our petrodollar dominion, only for Hamas’s Oct. 7 terrorist attack to detonate any real dream of a petroyuan replacing King Dollar. Then, when Stephen Miran explicated his wish that the United States relinquish the “burden” of its reserve currency status and the Trump administration launched Liberation Day, the president was ultimately convinced to walk back the Miran plan after the bond market cratered and the White House realized that you cannot sustain a $38 trillion national debt without a persistent trade deficit, otherwise known as a capital account surplus, keeping sovereign interest rates low.
Although the dollar has fallen from its nearly 70% share of global currency reserves at the start of the century, it still comprises nearly 57% of foreign exchange reserves and the vast majority of international banking transactions recorded by SWIFT. The revanchist, Third World experiment that is BRICS continues to prove a communist failure, and Europe remains so suicidally opposed to growth that it cannot fill an American vacuum. In short, even without Washington trying to maintain the greenback’s status, the alternatives are so suboptimal that dollar dominance has persisted.
But that does not mean the risk of failure is not a real and existential threat to American hegemony.
AMERICA 250: AMERICA HAS BEEN BLESSED WITH GREAT LEADERS
The relative decline of the dollar as a share of global reserves has coincided with the rise of Treasury yields, with the federal government now spending more than $1 trillion annually just on net interest costs to finance the national debt, more than it spends on the entire Pentagon. The Committee for a Responsible Federal Budget found that if the 10-year Treasury yield were just one percentage point higher over the next decade, it would add another $3.5 trillion to the national debt through 2036.
Two of the factors that fuel a currency’s lasting reserve status, its availability and the country’s trade deficit, should remain strong without politicians needing to do much. For the other two, stability and growth, Washington must, at a minimum, first do no harm. If the greenback is to last, say, 250 years as King Dollar, the federal government must not hinder America’s organic economic growth or inflate away the value of our currency. As long as the dollar stays steady, we profit from the exorbitant privilege indeed.