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The Dollar’s Full-Spectrum Dominance

Predictions about the greenback’s demise fail to appreciate the forces behind its continued supremacy. Positive feedback across official and private functions, the network effects associated with incumbency, and financial opportunism discourage collective action against the status quo.

TORONTO – Many experts believe that the US dollar’s global hegemony, which has endured for nearly 80 years, is finally coming to an end. This outcome is not impossible: economic crises, increased domestic polarization, and strong geopolitical headwinds could indeed culminate in the currency’s meltdown. But it is not likely.

Debates about the future of the international monetary system often fail to appreciate the greenback’s full-spectrum dominance, which requires understanding its role in public and private markets, as well as the various incentives to hold dollars. So long as self-reinforcing synergies and forms of opportunism continue to prevail, narrowing the yawning chasm between the dollar and other currencies will remain difficult.

To be sure, there are threats to dollar supremacy. The greenback’s primacy and pervasiveness in the global financial system has become a major bone of contention in the great-power struggle between the United States, China, and Russia. These geopolitical challenges are happening against a backdrop of high interest rates and America’s polarized politics, which prompted the drawn-out negotiations over the US debt ceiling earlier this year; taken together, they risk undermining the perceived safety of dollar assets. But for the greenback to be unseated, multiple actors must support a substantial currency shift.