Opinion: Understanding the power of The U.S. Dollar

The United States leads the world in military spending, spending more money than the next ten countries combined. This has led the United States to develop new advanced weapons to wage war against rivals such as Russia and China. Despite this, the most potent and used weapon by the United States is one that every person has access to. Entering the 21st century, the United States would prove to find itself the only wielder of the new most powerful weapon in the world—the U.S dollar. With such an advantage over the rest of the world, the United States has weaponized its economy. Instead of bombs and guns, the U.S. can wage war with trade and money. As the United States increasingly leverages its economic influence, several other countries have grown concerned about the power a single nation holds over the world.

To understand the U.S. dollar's strength, a quick, simplified rundown of how it rose to power is necessary. For the world to recover from the Second World War, a restabilization of the global economy was needed. Thus, 44 countries, including the USSR, France, and Great Britain, met at the Bretton Woods conference in 1944 to restabilize the global economy. To remedy the global economy, the Bretton Woods agreement created the International Monetary Fund (IMF), which essentially led the world to link their currencies to the U.S. dollar, which in turn was linked to gold. This agreement would assist the world in recovering from the Second World War, making it easier to repay loans from weapons and supplies and giving failing economies new life. However, around 25 years later, the system began to show its flaws. Increased spending due to Lyndon B. Johnson’s Great Society programs and the war in Vietnam would lead to inflation of the U.S. dollar. The dollar would decrease in value, but its conversion with gold would remain the same, leading to a possible economic collapse. To prevent an economic collapse, President Richard Nixon removed the U.S. dollar from the gold standard, effectively ending the Bretton Wood agreement. However, a new system was needed as many countries still had their currency linked to the U.S. dollar. The G-10, a group of the ten leading nations of the world, came up with the Smithsonian Agreement, in which fixed exchange rates centered on a devalued dollar. The U.S. currency would become a fiat currency, a currency not supported by gold or any physical goods but backed by a country’s government. The government essentially says a dollar is worth a dollar of goods and services, thus giving its currency value. Ultimately, the U.S. dollar remained the primary currency used by nations worldwide for global trade through systems like SWIFT. 

It is through systems like SWIFT that the United States can turn the dollar into a weapon. SWIFT allows two countries to pay with different currencies by converting their currency to a commonly held currency, the dollar. This only works due to the status of the U.S. dollar as a global reserve currency, in which banks around the globe hold reserves of the U.S. dollar for use in conversions and trade. For example, if a Jamaican buyer wants to buy a shirt in Canada through SWIFT, the Jamaican currency would be converted to U.S. dollars, which would be converted into Canadian dollars, allowing for a clear-cut conversion. Canadian banks don’t hold a large amount of Jamaican currency, so it is difficult to gauge conversion. Thus, the U.S. dollar acts as an intermediate. This makes the U.S. dollar necessary for global trade, giving the United States a massive economic and geopolitical advantage as the economy can be used as a weapon, allowing for an indirect economic war to be waged. 

An example of the power of the USD as a weapon can be seen in Iran. In 2018, President Trump withdrew from the Nuclear Arms Agreement with Iran. In its place, the United States imposed economic sanctions and banned Iran from SWIFT. Due to a ban from SWIFT, it was more difficult for Iran to participate in Global imports and exports, as currency conversions were made more difficult. This led to a 5% decline in Iran’s economy, inflation, which ushered the Iranian currency to be 176,000 to the dollar, and an overall decrease in oil exports from around 2 million barrels per day before sanctions to just above half a million barrels per day after sanctions. When used as a weapon, the United States dollar can severely and swiftly cripple a nation to force them into compliance. More recently, the United States has used the dollar to target Russia. At the onset of the Ukraine War, the United States moved quickly to sanction Russia, quickly banning them from SWIFT. As a result, the Russian economy was over 5 percent smaller than had been predicted before the war. Further, exports declined by 14%, and imports decreased by 11%. Clearly, the U.S. dollar can be a devastating weapon used to create an unfavorable economic situation for the targeted country. This has not gone unnoticed by other countries, as questions have been raised about having only the U.S. dollar be the global reserve currency. 

In response to the power of the United States currency, countries have banded together as they’ve felt threatened by how the dollar has been used recently. The formation of BRICS proves to be possible competition for the dollar. The acronym BRICS stands for Brazil, Russia, India, China, and South Africa. However, 40 other countries, including Iran, Saudi Arabia, and the United Arab Emirates, have expressed interest in joining. BRICS challenges the traditional dominance of the dollar, attracting countries dissatisfied with the current age of Western Economic dominance. BRICS looks to establish a new global reserve currency to compete with the U.S. dollar, weakening the ability of the United States to wage economic war. The goals of BRICS include reducing the influence of the US on the global stage, weakening the standing of the US dollar as a global reserve currency, encouraging free trade among member countries, and reducing the risk of an economic collapse due to the volatility of the U.S. dollar. The formation of BRICS highlights other countries' dissatisfaction regarding the United States’ choice to capitalize on the dollar’s power. Can BRICS overthrow the dollar as the most used currency in the world? Probably not. There are simply too many US Dollars in circulation. But BRICS can make the United States think twice about further leveraging its dollar dominance, as it may lead more and more nations to move away from SWIFT and toward BRICS instead for fear the US dollar may be used against them. Despite possible challenges, the modern global economy depends on the US Dollar, giving the United States a massive economic advantage.