The U.S. dollar has been one of the major tools of U.S. hegemony around the world with its turbulent history from around the end of World War II up until today.
Since the U.S. dollar is an important tool for the survival of the U.S., it needs to be protected, and that is done by military power if necessary. In order to understand the American position in geopolitics and economic relations today, it’s important to go through a summarized history and ask ourselves why the military is important in this equation.
Also, keep in mind that about 60 percent of the world’s trade transactions happen in U.S. dollars and that the U.S. controls all the important trade routes in international waters. It has taken a few steps to strengthen its control. Before 1971, the U.S. dollar was trusted because it was backed by a gold reserve. However, after 1971, it gained trust as it enjoyed a strong military power and oil sales were done in dollars.
A history leading to the domination
In 1944, World War II was nearing its end, and the U.S. was leading the allies in writing history, not only that but also in drawing the future maps of the world. In July 1944, the U.S. called for the Briton Woods Conference in New Hampshire, which resulted in very important decisions. First, to create the International Monetary Fund that dealt with economic problems in the world, second, to establish the World Bank that dealt with development, and third to make the dollar the world’s reserve currency. Those three decisions show how the U.S. controlled the world’s economy.
But what convinced the world to accept the dollar as its reserve currency? There are two fundamental reasons for every country’s acceptance, not necessarily willingly, but rather the absence of choices explains why.
First is the American military and economic power. Second is the U.S. possessing about 70 percent of the world’s reserve of gold and promising to back dollar bills with gold for every $35 with an ounce of gold.
The U.S. also created a condition where no country has the right to interfere in the operations of the Federal Reserve and none would monitor the process of printing the dollar. As such, there was conflict between the larger powers, namely the Soviet Union, who did not accept the American conditions and left the conference.
After the end of the World War II, the U.S. started dumping the dollar in the form of grants or loans on countries all over the world. Soon the American ownership of 70 percent of the world’s gold reserve was questioned, but it was too late since everyone had a stake in the dollar.