US dollar remains the global currency hegemony, even after Covid and internationalization of other currencies

More than a decade after the Global Financial Crisis (GFC), it is a good moment to reassess power relations in the international monetary system and analyse the state of US dollar hegemony. In the aftermath of the great recession, there was a certain consensus that it had reached its peak. For the first time, Chinese policymakers were openly calling for moving away from the greenback and starting in earnest to promote the renminbi’s (RMB) internationalisation. At the same time, the then-fashionable BRICS (Brazil, Russia, India, China and South Africa), which had weathered the crisis relatively well, also began having regular summits to promote the use of their domestic currencies. And even European leaders like Nicolas Sarkozy took advantage of France’s G20 presidency in 2011 to discuss how to reduce the world’s dollar dependence. Since then, many important geopolitical events have happened. In 2012 the European debt crisis almost ended in Grexit, although the euro finally survived, and the eurozone, thanks to a series of ambitious reforms, became structurally more resilient. In 2016 Trump came to power and pulled out of the Iran deal, pushing the Europeans to find alternative ways to conduct trade and settle energy imports (especially gas) without relying on the dollar. Then, in 2020, came the pandemic, again massive quantitative easing, and in 2022 the war in Ukraine with the consequent freezing of Russian assets in western countries, and in the same year a ‘steep’ hike of interest rates by the Federal Reserve (Fed) to fight their effects. The question, however, is whether these shocks have transformed the international monetary system in a substantial manner. On the one hand, some argue that these episodes have only reinforced the centrality of the dollar. The greenback is still, by far, the global currency of choice, as individuals, corporations and monetary authorities continue to rely heavily on the dollar as a medium of exchange, a unit of account and a store of value. Moreover, the Fed remains the de facto central bank of the world, as evidenced by the enormous liquidity that it provided through its currency swap lines to both developed and developing countries during the COVID-19 lockdowns, as well as the dollar shock unleashed by its rising rate policy in Europe and beyond.