Dollar Dominance: Deconstructing the Myths, Untangling the Web
Tuesday January 5, 2016
On December 16th, 2015, Federal Reserve Officials announced that after six years of 0 percent interest, they would finally raise the Federal Fund Rate. The move was seen by many as an attempt to provide markets with a boost of confidence. Although markets initially sold off on the news, they have in fact rebounded back to normal levels. Still, the question of whether or not the US economy is strong enough to maintain levels of growth has yet to be answered. Washington’s privileged position as issuer of the global reserve currency has allowed for an unprecedented monetary expansion with relatively low impact on global financial markets.
Instead of consuming its own inflation, it exports it to producing economies who seem happy enough to send their hard-earned wealth to US consumers for what many people consider mere pieces of paper. The result of a repeat US economic engine stall, yet another round of monetary injection, doesn’t seem likely to draw the ire of the international order that subsidizes US consumption. Any criticism of Fed monetary policy or speculation concerning its implications would be met with the usual bromides about how the dollar is still strongest among weak rival currencies.
The Dollar’s much coveted and seemingly unshakable position as global reserve currency has caused many to speculate on the true nature of its relationship to US foreign policy and global international affairs. Washington’s ability to run massive deficits in the face of minimal international pressure compel many to believe that the US is somehow holding the world hostage. Lending credibility to this view, US military interventionism in Iraq and Libya, as well as an aggressive posture towards Iran, all happened to coincide with the governments of those countries adopting anti-dollar policies. Ever a popular villain in conspiracy mythology, the Fed is said to be a front operating at the behest of an international cabal of bankers hell-bent on controlling the world through a one world currency. In this scenario, the US government is painted as simply the enforcement arm of its puppet masters on Wall Street.
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