Current:Home > NewsThe U.S. dollar conquered the world. Is it at risk of losing its top spot? -Mastery Money Tools
The U.S. dollar conquered the world. Is it at risk of losing its top spot?
View
Date:2025-04-16 18:42:00
You might just think of the dollar as the money in your wallet, the cash you use to buy your morning coffee.
But the dollar is much, much bigger than that.
The dollar is the world's currency: It dominates global business.
Economists call it the "global reserve currency," a fancy title the dollar got about 80 years ago that has brought some pretty serious perks to the U.S. economy.
But could the dollar get knocked off the top spot? There are challengers emerging, and history shows that countries whose currency dominated the globe can fall from that top spot pretty fast ... even over the course of a few days.
How it started: timing + muscle + lots of gold
The U.S. dollar did not luck its way into the top spot.
It was a carefully engineered plan that unfolded in the mountains of New Hampshire nearly 80 years ago. At the time the British Pound Sterling was the international currency. A title it had held for decades.
The dollar's rise happened pretty suddenly at the Bretton Woods International Monetary Conference in 1944. Bretton Woods was a gathering of world leaders at the end of World War II. They came together to try and establish an international system for trade and finance, to help bind the world together and increase prosperity for all.
Everyone agreed that in order to ease international trade, there needed to be a common currency, a standard everyone could use.
At the time of the conference, the British economy was in shambles. The costs of fighting a war on its own soil had been enormous. It was clear that the British Pound Sterling could not be the currency everyone counted on.
So the British pushed for a new currency that would solely be used for inter-country trades: Economist John Maynard Keynes, who was at Bretton Woods on behalf of the British, proposed the "Bancor" (a mix of the French work for bank, 'banc' and the French word for gold 'or) but also suggested "Orb" and even ... "Unicorn."
But the U.S. dollar left the Bancor, the Orb and the Unicorn in its dust. The U.S. was economically quite strong. It also had lots of gold in its vaults, which made people feel like its wealth was backed up.
It used these advantages to help muscle the dollar in as the official currency of international business at the conference.
The perks of being the world's currency
Being the world's reserve currency essentially means the U.S. dollar is at the center of most of the business on Earth.
Example: If you're a clothing designer in Chile and you order cotton from Egypt for some shirts you plan to make, you will pay for that cotton in U.S. dollars. Not Chilean pesos and not Egyptian pounds.
To be clear, the U.S. isn't involved in that deal at all, but the U.S. dollar is. When international deals happen, they usually happen in dollars.
This is a big boost to the U.S. in all kinds of way: For example, it means domestic businesses have a home court (home currency) advantage when they do business overseas.
But as the Bretton Woods conference demonstrated, that top spot can slip away pretty fast
"We have an important advantage, which may whittle away slowly if we're not careful," says economist Michael Boskin, a former White House advisor.
The challenges to the dollar
There are a couple reasons why the dollar's status is suddenly being talked about as at risk.
Earlier this year, China, Russia, Saudi Arabia, the United Arab Emirates and even Brazil started making trades in other currencies: The Chinese Yuan and the Russian ruble. This was a very direct challenge to the U.S. dollar's central position.
China has long been pushing to have its currency replace the dollar, but it's getting momentum now for a couple of possible reasons:
First: the debt ceiling. Being the currency everyone counts on to do business means people have to believe that your currency is reliable. That recent debt ceiling drama made the U.S. (and, by extension, the dollar) look potentially risky and unstable.
Using the dollar as an economic weapon
The debt ceiling is not at the heart of the recent spate of non-dollar trades, says Benn Steil, an economist with the Council on Foreign relations.
"The real issue is the U.S. government's increasing use of the dollar as a tool for financial sanctions," he says.
The dollar is so powerful, if you can't use it, you are essentially iced out of being able to do most business anywhere in the world.
The U.S. has used this as a nonviolent way to put pressure on countries: North Korea, Iran and most recently Russia. After the invasion of Ukraine, the U.S. said, 'No dollar for you!'
Steil says the economic impacts of those sanctions have been massive and other countries have noticed.
"Sanctions are an effective tool, but we have to be careful," he says. "It's like over-prescribing an effective antibiotic. It encourages the development of new strains of bacteria that are resistant to the antibiotic."
If you are a country that has a complicated relationship with the U.S., watching the effect of American financial sanctions on Russia is scary. It's been enough to push China, Saudi Arabia and others to make deals that get around the dollar, trying to chip away at its power
"This is not nearly as efficient as using the dollar," Steil says of these deals. "That can lead to a massive fragmentation in the global economy and a much less efficient and less productive global economy."
It's still all about the Benjamins... for now
Right now, the dollar has a lot of momentum and is not at any immediate risk of losing its top spot, says economist Michael Boskin.
Still, he says momentum can change fast.
"Other countries in previous times have been the reserve currency and they fritter that away," he says. "We need to be very careful."
And right now, with so much global turmoil, China and others have started to see a possible opening to grab that top spot – or at least start to chip away at the U.S. dollar's dominance.
veryGood! (5476)
Related
- Krispy Kreme offers a free dozen Grinch green doughnuts: When to get the deal
- Ryan Gosling and Eva Mendes Make Rare Appearance at 2024 Paris Olympics
- Debby shows there's more to a storm than wind scale: 'Impacts are going to be from water'
- Yellowstone's Luke Grimes and Wife Bianca Grimes Expecting First Baby
- What to watch: O Jolie night
- Sara Hughes, Kelly Cheng keep beach volleyball medal hopes alive in three-set thriller
- USA women's basketball roster, schedule for Paris Olympics: Team goes for 8th-straight gold
- Josh Hall addresses 'a divorce I did not ask for' from HGTV's Christina Hall
- Mets have visions of grandeur, and a dynasty, with Juan Soto as major catalyst
- Meghan Markle Shares Why She Spoke Out About Her Suicidal Thoughts
Ranking
- Stamford Road collision sends motorcyclist flying; driver arrested
- National Chocolate Chip Cookie Day is Sunday. Here's how to get a free cookie.
- WWE champions 2024: Who holds every title in WWE, NXT after SummerSlam 2024
- Back-To-School Makeup Organization: No More Beauty Mess on Your Desk
- Off the Grid: Sally breaks down USA TODAY's daily crossword puzzle, Hi Hi!
- Mega Millions winning numbers for August 2 drawing: Jackpot now worth $374 million
- Joe Rogan ribs COVID-19 vaccines, LGBTQ community in Netflix special 'Burn the Boats'
- Ryan Gosling and Eva Mendes Make Rare Appearance at 2024 Paris Olympics
Recommendation
Apple iOS 18.2: What to know about top features, including Genmoji, AI updates
Olympic gymnastics recap: Suni Lee, Kaylia Nemour, Qiu Qiyuan medal in bars final
Men's 100m final results: Noah Lyles wins gold in photo finish at 2024 Paris Olympics
American Kristen Faulkner makes history with first road race gold in 40 years
Whoopi Goldberg is delightfully vile as Miss Hannigan in ‘Annie’ stage return
Georgia tops preseason USA Today Coaches Poll; Ohio State picked second
Florida power outage map: Over 240,000 without power as Hurricane Debby makes landfall
Sha'Carri Richardson gets silver but no storybook ending at Paris Olympics