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Dollar primacy and American power: What's at stake?

ABSTRACT While the demise of the dollar has been predicted in the past, expectations of a fundamental change in the international role of the dollar are increasingly widespread, and eminently plausible. From a situation where the dollar was the undisputed and dominant international currency, one likely scenario is that it will become one of several key currencies that could be characterized as ‘peer competitors’. This raises the question: does it matter? In particular, does it matter for US power? This paper reviews why the dollar's status might change, from that of a ‘top’ to a ‘negotiated’ currency. It then considers the consequences–the loss of economic benefits and structural power, and the costs associated with managing a currency in (relative) decline and eroding international prestige. I conclude that, even as the dollar is likely to remain the world's most widely used international currency, the vulnerability of the greenback presents a potentially significant and underappreciated restraint on contemporary American political and military predominance.