Beyond the dollar: Ensuring equitable and peaceful currency reforms

By Bharat Dogra   

The domination of the US dollar as the international reserve currency has become an increasingly controversial issue. There are five key aspects of this controversy that deserve attention.  

First, inherent problems arise when a currency serves as both a national and global reserve currency. Second, these issues intensify when the economy of the issuing country weakens relatively compared to other economies, especially if the country irresponsibly exploits its privileged position rather than making genuine efforts to strengthen its economy. Third, the problem escalates when the country accumulates excessive debts and deficits. Fourth, global concerns deepen when this privileged position is used to fund frequent and destructive wars. Lastly, worries grow further when the country frequently imposes crippling sanctions or seizes the assets of other nations.  

The combination of these factors has led to increasing efforts to seek alternatives to US dollar hegemony. Although some steps have been taken, a greater concern looms—the possibility of a major, destructive war over whether US dollar dominance continues or not.  

After World War II, the US dollar replaced the British pound as the leading global currency, a transition that occurred smoothly. The US had emerged as the world's strongest economy, and Britain, the most significant US ally (albeit increasingly a junior one), accepted the change.  

As long as the US maintained its global economic and political dominance—endorsed by the wealthiest nations—there were no major hurdles to the dollar's acceptance as the international currency. It was expected, or at least hoped, that the US would exercise this privilege responsibly. In 1965, Valéry Giscard d'Estaing, France's Finance Minister, famously described the US dollar's dominance as an "exorbitant privilege."  

A few years later, in 1971, President Richard Nixon unilaterally announced that the US would no longer be obligated to exchange dollars for gold. This abrupt decision, made without international consultation, led scholar Susan Strange to describe the situation as a "super exorbitant privilege."  

In a 2005 interview with People's Daily Online, Nobel Laureate economist Paul Samuelson warned that despite short-term dollar strength, America's ongoing balance of payment deficits would eventually trigger a global financial crisis. He criticized the irresponsible use of America's privileged position, stating:  

"President Bush is a reckless economist leading a reckless crew of subordinates. Spending on a hopeless imperialist caper in Iraq, combined with tax giveaways to the rich, will eventually depreciate the US dollar. Those abroad holding dollar assets will suffer capital losses they do not currently anticipate."

Similarly, Jonathan Kirshner of Cornell University noted in his 2008 paper, Dollar Primacy and American Power: What’s at Stake?, that rising concerns over the dollar’s future were becoming more frequent. He warned that a shift in the dollar’s role would not only have economic consequences but could also reshape global power politics. Kirshner observed:  

"US trade deficits have been breaking records repeatedly. Under such circumstances, most other countries would find themselves economically trapped." 

Since then, the situation has worsened. The US’s share of the global economy has declined, while its privileged position has been used to wage endless wars, impose arbitrary sanctions, and seize assets from other nations. Consequently, more people believe that the US has not used its "exorbitant privilege" in a responsible or fair manner.  

Although some attribute the dollar’s declining global influence to specific policies of the Trump administration, the roots of this issue extend much further back.  

While the debate often focuses on the challenges faced by other nations, the US itself has suffered from this privilege. For example, it enabled America to run massive budget deficits instead of making essential decisions to maintain economic competitiveness. The ability to finance endless wars without immediate financial consequences has contributed not only to widespread destruction but also to an erosion of the country’s ethical foundation.  

Some observers suggest that unresolved currency conflicts have historically led to violence. There are indications that protecting US dollar dominance may have played a partial role in previous wars.  

Looking ahead, the prospect of a major war over this issue is more pronounced than ever. While advocating for a fairer global currency system, it is crucial to emphasize that such changes must be achieved through peaceful means.  

---

The writer is Honorary Convener, Campaign to Save Earth Now. His recent books include Planet in Peril, Earth without Borders, A Day in 2071, and Man over Machine