Dollar hegemony

A dominant role for the dollar in the global economy was inevitable given US economic and financial strength after the Second World War. But the delinking of the dollar from gold in 1971 eliminated constraints on the increase in the use and amount of the key currency and allowed its value to be determined by market forces. Acceptance of a national currency for international payments required other countries to rely on export-led growth to earn that currency and required the US to run trade deficits financed by capital inflows. American growth came to depend on foreign savings that expanded credit and increased debt at home and to residents and governments of other countries. The continuation of this system depends on confidence in America’s ability to maintain the level of growth needed to service its debts to the rest of the world.