Dollar's Diminishing Grip

The US dollar's century-long supremacy is waning as nations pivot to gold, digital alternatives, and regional currencies, ushering in a decentralised monetary order seeking fairness beyond the dollar's shadow

- DIPANKAR DEY

Since World War I, for over a century, the US dollar has been reigning supreme in the world economy. Its position as the global reserve currency was recognised at the Bretton Woods Conference in 1944, which fixed the US dollar to gold at the parity of USD 35 per ounce. All other currencies had fixed, but adjustable, exchange rates to the dollar. Thus, a 'Gold Equivalent Standard' emerged in the global monetary system.

The US dollar's dominance was reinforced by America's post-war industrial power and military supremacy. In 1965, around 73 per cent of the global foreign exchange reserve was maintained in USD. Pound sterling was the only other major currency, with a global share of nearly 26 per cent, used as foreign exchange reserve. The dollar was born in a world where the US commanded moral authority, industrial might and trust.

The US cannot lead the world by force forever. Sooner or later, people will stop following it. Over the years, the trust in US leadership has eroded.

Nonetheless, due to the prominence of the US in the global capital markets and international debt, the US dollar continues to play a significant role in the global economy. Between 1999 and 2019, the USD accounted for 96 per cent of trade invoicing in the Americas, 74 per cent in the Asia-Pacific region, and 79 per cent in the rest of the world. In April 2022, the US dollar was used in 88 per cent of all foreign exchange trades, though the share of US trade in the total global trade is only around 11 per cent.