In the realm of global finance, certain symbols carry a weight far beyond their material worth. No matter where we were born, whenever someone mentions money, the first image that comes to mind is the image of Benjamin Franklin.
Since World War II, the dollar has maintained its unwavering supremacy despite fluctuations in the global economy. Yet, as we navigate the turbulent waters of a post-pandemic world rife with geopolitical and economic crises, as well as the emergence of digital currency, we must ask ourselves: Is it time to reassess the fundamentals of our monetary system?
As Karl Marx suggested, I tend to believe that when money enters the global market, it must give up its “national uniform.” The rise of sophisticated digital currencies, such as Bitcoin, offers a viable alternative to the US dollar’s dominance. Properly regulated, these digital, decentralized currencies could fulfill the three primary functions of the US dollar: as a medium of exchange, a unit of account, and a store of value. Embracing a global digital currency could also mitigate the bubbling of the social volcanic mountain exacerbated by economic disparities.
In 1944, the Bretton Woods Agreement anchored the world’s currencies to the US dollar instead of gold, establishing it as the primary medium of exchange for international trade. Ever since, the dollar has remained the primary medium of exchange in the world, as well as the most frequently kept reserve currency. This system has significantly benefited the US as the world’s leading economy, but it has also sparked global tensions toward this mechanism.
Exploring alternative currencies
Since 1970, several emerging economies and world powers have sought alternative currencies for trade, leading the process known as de-dollarization. For years, BRICS countries (Brazil, Russia, India, China, and South Africa) have discussed a shared currency, to protect against devaluation when the value of the dollar increases. This trend has gained momentum, with de–dollarization now part of several counties’ strategies and policies.
America’s dominance over the world financial system and its use of sanctions as a geopolitical tool, notably against Russia throughout the ongoing conflict, have further fueled the de-dollarization trend. As a result, the percentage of foreign exchange reserves in US dollars held by central banks has dropped from over 70% in 1999 to roughly 59%.
Major historical revolutions, such as the industrial and digital transformations, have frequently outpaced regulatory frameworks. As we stand on the brink of the AI revolution, it is crucial for policymakers to internalize the lessons of history. The banking and financial sectors are just beginning to align with the demands of the digital age; similarly, international politics must now transcend nationalistic agendas and prioritize the collective welfare of the global community.
Ending the US dollar’s hegemony could benefit both the US and the world economies’ geopolitical tensions. With China holding the largest share of global reserves, surpassing $3 trillion, it yields immense power over the world economy. This concentration of power leaves the US dollar vulnerable to sudden fluctuations and jeopardizes global trade. Moreover, the enormous money printing of the US as a response to the pandemic and to provide monetary aid to allies like Israel and Ukraine, has resulted in rising debt and economic growth below expectations.
As the American share of the global economy diminishes, maintaining dollar dominance seems increasingly paradoxical. Relinquishing this position of power would certainly mean a big compromise for the US, but it would align with its stated goal of promoting worldwide democracy. Furthermore, it will lessen the pressure that other nations place on the US while facilitating the better use of fiscal and monetary measures to stabilize the domestic economy.
When the going gets tough, the tough get going. Now more than ever, nations need to set aside trade disagreements and cooperate to develop a comprehensive global cryptocurrency-based model. Sustainability depends on collective efforts to create regulations governing gradual adoption, utilizing blockchain technology, and defining precise implementation objectives for the near future.
While some may argue that volatility is the reason that the world isn’t ready yet for this advancement, I believe that this revolution can be achieved with the combined knowledge of the world’s most brilliant political and economic minds without giving any particular nation a clear advantage.
In conclusion, we must not leave the fate of this transformative endeavor to the “invisible hand.” It’s time for governments to actively intervene and lead a revolution. By embracing and regulating digital currencies, we can create a more stable and equitable global financial system, ensuring that today’s advancements lay a strong foundation for tomorrow.
The writer is a fellow of the Argov Program in Leadership and Diplomacy and a third-year student in economics and entrepreneurship at Reichman University.
