Currency Wars and the Erosion of Dollar Hegemony

This Article examines how and why the dollar is being challenged. Part I provides a brief history of the U.S. dollar, showing how it has evolved from something with intrinsic value to something that has no intrinsic value, except via government fiat. Part I traces the evolution of money in the United States, from its original foundation in commodities and gold and silver coins, to the creation of money via Federal Reserve notes which function as money substitutes, that is, paper instruments that represent gold and silver and presumably can be converted into real money. The aim of Part I is to show that money was originally rooted in something of value and that over time, its value was debased and became more attenuated and symbolic rather than intrinsic. Part II examines U.S. power after World War II and the rise of the dollar as the preferred currency of the international economic system. It will focus on the dominance of the dollar-centered global economy and discuss the “exorbitant privilege” the system has given the United States. For example, to protect this system and the privilege it bestows on the United States, the United States pressured its allies, particularly Germany, to refrain from demanding that dollars be exchanged for gold.