Why the U.S. dollar remains the West’s best economic weapon against Putin
The dollar remains “by far the pre-eminent international currency in all respects – as a unit of account, medium of exchange and store of value,” Eswar Prasad, an economics professor at Cornell University, writes in his latest book,It has managed to retain this exalted status, even as the American share of the global economy has fallen. Key commodities continue to be priced in dollars, and the currency still accounts for about 40 per cent of international payments.
In the early 2000s, the euro garnered support as the likeliest challenger. Less than a decade later, the European financial crisis nearly led to the demise of the bold single-currency experiment. Yet dollar-denominated assets still make up just under 60 per cent of the more than US$12-trillion in foreign currency reserves held by the world’s central banks – down from more than 70 per cent of a smaller pie two decades ago. The euro sits at about 20 per cent and the yuan below 3 per cent.
Goldman suggested the greenback could go the way of – horrors! – the British pound, which ruled the monetary roost for the better part of a century before the First World War. Not everyone sees sanctions ultimately harming the dollar or other Western currencies. Zach Meyers, a senior research fellow at the Centre for European Reform, argues that the sanctions “do little to undermine Western predominance in the global financial system.” In fact, he wrote in a recent report, “the opposite is true.”
Not even the inevitable rise of digital currencies is likely to alter that reality. “Private stablecoins backed by U.S. dollars might well gain more acceptance worldwide than those backed by other currencies, implicitly bolstering the dollar’s prominence,” he says.
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