Loosing dollar heg would cause global economic collapse

It isn’t even clear that the U.S. could “end” the dollar’s dominance, even if it wanted to. The dollar’s use in trade and payments reflects the decisions of many global actors, including but not limited to foreign governments. Companies and financial institutions overwhelmingly choose to use dollars because of the unrivaled depth and liquidity of the dollar financial market; at present, no other currency is ready to play this role. The only way the U.S. could change this would be to dramatically contract its borrowing, which would likely cause a global recession.

Adler and Bessner’s argument gets at a dilemma at the heart of international monetary politics. Since Bretton Woods, the dollar has played two roles that sometimes end up at cross-purposes: It is the domestic money for the U.S. and the international unit of account for the globalized economy. No other country has been willing to allow its currency to be used in this way (or issued a currency capable of it). But without some currency playing this role, economic globalization as we know it cannot continue.

Leaders in Russia, Venezuela, and other nations have spoken with bravado about ending the petrodollar for years but are no closer to making that change a reality. Iran’s Oil Bourse has accomplished little: OPEC still prices its members’ oil in dollars. The petroyuan lacks the market liquidity to compete with the petrodollar. Notorious opacity of Chinese financial markets aside, the capitalization of U.S. equity and debt markets is more than four times that of their Chinese counterparts. De-dollarization is more rhetoric than reality, as it has been for decades. A more multipolar currency system may offer greater stability decades down the road if the U.S. share of global economic output continues to shrink, but we aren’t there yet.

I recently traveled to Beijing and Tokyo to speak with finance officials on exactly this issue. All agreed that for the foreseeable future, getting off the dollar is essentially impossible. In the words of Sun Tianqi, chief accountant of China’s State Administration of Foreign Exchange, which manages China’s dollar reserves, “the role of [a] currency is mostly determined by markets, not governments. Governments cannot simply choose to end [the] dollar’s role.”

The U.S. cannot end the dollar’s dominance, and it shouldn’t want to. Ending forever wars does not require renouncing an exorbitant privilege that, if used properly, could be the source of so much good.