Monetary Policy Case Study

The Power of the US Dollar: The Waning Glory?

OR

Abstract:
After the end of the Second World War, backed by the powerful US economy, the dollar gained the status of an international currency almost overnight under the Bretton Woods system of international finance. Even after the collapse of the Bretton Woods system in 1971, the usage of dollars for trading oil, the world’s most valuable commodity, continued, resulting in dollar hegemony. In the following years, the dollar established its presence in all aspects of international finance, and at one time, more than 80% of global currency reserves were dollar denominated. The US economy reaped massive seignorage gains and became the ‘Super Power’ of the twentieth century. But the US failed to maintain the value of the dollar. Unchecked spending by successive US administrations resulted in a huge pile of trade and current account deficit that eroded the value of the dollar.

Pedagogical Objectives:

• To discuss the importance of the US dollar among the international currencies
• To discuss the future of the international monetary system.

Keywords : Dollar hegemony, International monetary system, Global financial system, International trade, USA’s fiscal policy, Foreign exchange reserves, Global economic crisis and recession, Monetary Policy Case Study, USA’s current account deficit, Plaza Accord, Net international investment position, Global currency, The gold standard, Bretton Woods system, Alternative global currencies, European Union economic growth