US dollar dominance of world economy

Overvalued dollar
Weakness of dollar

Nature

The dominance of the US dollar in the world economy presents several challenges. It creates a dependency on the dollar for international trade and finance, leading to vulnerabilities for countries that lack sufficient dollar reserves. This dominance can exacerbate global economic inequalities, as nations with weaker currencies face higher costs for imports and debt servicing. Additionally, the US can exert significant influence over global financial systems, potentially using sanctions and monetary policy to its advantage. Such dynamics can hinder economic sovereignty for other nations and contribute to geopolitical tensions, prompting calls for a more diversified global currency system.

Incidence

The rise in the cost of the dollar with respect to other currencies - about 70% since 1980 - resulted in American farmers and businessmen being unable to compete in overseas markets; domestic American industries being wiped out because foreign good cost much less than domestic products; developing countries' debts rising every time the dollar goes up; and the USA trade deficit reaching $150 billion in 1985, thus making the USA a debtor nation for the first time since World War I.

Claim

The world economy is dominated by the USA, whose dollar has superseded the established gold standard for world economy. The danger in allowing one nation's economy to support the equilibrium of the global economy is twofold: fluctuating trust in the USA' economy leads to world-wide monetary instability; and national pride in the dollar has become unduly inflated. The risk of renewed weakness of the dollar in the 1990s with rapid depreciation could push up inflation in the USA, raise domestic interest rates, and -if international investors become reluctant to hold dollar assets at prevailing yields - cause instability in financial markets.

Counter-claim

The notion of US dollar dominance as a pressing problem is vastly overstated. The dollar's stability and widespread acceptance facilitate global trade, fostering economic growth and stability. Countries benefit from a reliable currency for transactions, reducing exchange rate risks. Instead of viewing this dominance as a threat, we should recognize it as a cornerstone of international finance that promotes cooperation and prosperity. Focusing on this as a problem distracts from more pressing global issues that require our attention.