The Dollar Hegemon? Implications for Policy Makers

This paper reviews the central role of the US dollar in the global trade, financial and monetary systems. The dominance of the US dollar as an invoicing, issuance, anchor and reserve currency has increased over time, especially so and somewhat paradoxically since the end of the Bretton Woods system. The dollar is now the ‘hegemon’ currency. I propose an explanation based on the growing complementarities between the role of the dollar for international trade and for international financial transactions. I also discuss the implications for policymakers of living in a ‘dollar world.’ The paper concludes with a discussion of some possible challenges to the dollar’s hegemony