By PRFSU Writers 2023-2024 
IANS | Kunming
Mario Rodrigues
The United States has maintained its status as the leading superpower in the world since its victory in WWII. As countries in Europe were rebuilding from the rubble brought by the war, the US strengthened its global position. At home, the United States remained unscathed and in fact rebooted its economy with wartime production. With the United States having the most stable economy, Australia, Japan, Canada and countries in western Europe, 44 countries total, signed the Bretton Woods agreement, which stated that international trade would be conducted in the US dollar, necessitating that countries would keep reserves of US dollars in order to conduct their international trades. The agreement was broken off in the 1970s but most countries still choose to trade in dollars to this day.
The US dollar then and now, is treated as a reserve currency. Historically currencies become reserve currencies because they do not fluctuate dramatically in their value relative to other currencies or their own value. People and companies trading internationally do not want to sell their products in exchange for a currency that may diminish significantly in value after the trade is made as it creates an unpredictable profit. Similarly, the other party would not agree to give an amount of currency if it may suddenly increase in value as they may end up spending more on the purchase than they believe necessary. In order to have enough stable currency to make these trades, countries, and companies keep reserve currency on hand for international trade. Because of the stability of the US dollar, it remains the currency countries most often keep reserves of and makes international trades with.
The US dollar being the dominant reserve currency provides several benefits to the United States. People around the world choose to keep their money in US dollars or in investments in US dollars when they want to put them in savings because they believe it has less of a risk to drop down in value than the currency of their own countries.. For example, if you make your wealth in Mexican pesos and want to save some of it, assuming the Mexican peso has a greater risk of depreciating in value, it would be a good idea to exchange your pesos into USD to prevent devaluation and if you want to generate revenue from your USD savings you can place your money in US government bonds. This incentive ensures that there is an abundance of demand for US government bonds. When the US government issues bonds they accept money from individuals in exchange for paying back that money in the future plus interest. This demand for US bonds permits the US government to spend more money than it takes in which has allowed the US government to more easily go into debt, as there is less pressure to produce a balanced budget. Such availability of debt funds over the past 80 years has contributed to the US accumulating 31 trillion dollars in debt. Another benefit is that it allows greater access to international products because of the ease of pricing. A greater number of transactions in USD means product prices more closely reflect their actual market values. Additionally, US companies and individuals are also more comfortable trading internationally since a majority of goods have prices listed in US dollars..
Recently a number of events have threatened the US Dollar’s status as the foremost reserve currency. Most notably the BRICS countries; Brazil, Russia, India, China and South Africa, have made plans to create their own currency to conduct international trade between themselves. Experts say the creation and implementation will likely take a few years. In the meantime, several of the BRICS countries have already made moves to ditch the US dollar. Russia has agreed to trade with China in the Chinese Yuan. Brazil has also agreed to trade with China in the Yuan and the Brazilian president has even gone as far as denouncing the centrality of the US dollar and encouraging other countries to stop using it. Such decisions have come about amid sanctions placed on Russia for its actions in Ukraine that make it harder for Russia to obtain US dollars and China’s efforts to gain influence over the US on the world stage. In China’s pursuit of its ambitions it has built a stronger relationship with Brazil. Saudi Arabia has also considered making its oil trades to China in Yuans as it attempts to move away from the US dollar as well. Such moves could potentially threaten the supremacy of the US dollar.
Yet, despite China’s waxing influence, experts believe that it is unlikely for the Yuan to replace the dollar in the interim because of its flaws as a reserve currency as it is heavily manipulated by the Chinese government and China does not allow the currency’s stated value to reflect its actual value on the market. Countries outside of BRICS may be at an even greater risk of financial punishment by China if they use the Yuan, because of China’s heavy hand over their currency, compared to the risk of economic sanctions they could face from the US.
Nonetheless, the dollar’s role as a reserve currency has indeed declined in the past decades. According to the IMF, the percentage of US dollars in foreign currency reserves has gone from about 72% in 1999 to 59% in 2021. It could take decades for the US dollar to lose its status as the dominant reserve currency, but its disuse as a reserve currency could spell the decline of the US as a world power as history tells us that status as an issuer of the world’s reserve currency often indicates a country’s status as a superpower. It may also be hard to maintain superpower status with less borrowing potential to spend on military power and defense-related projects. The US could lose its preeminence in international affairs as a result. However, there can be some benefits to this trend. Currently, because of the high value of the dollar US products and labor are expensive abroad. A decline in value may stimulate demand for US products.
All in all, the US may be losing its hegemony over international trade, which could spell the end of the American-dominated era. This has important implications for US debt payments and begs the question, what will become of the US as an international player in the decades to come?