[How About This Book] Past Its Peak... The Fall of the Dollar

"After the Dollar":
Seventy Years of Dominance Since 1944
Now, Global Economic Hegemony Wavers
Peaked in 2015, Now in Decline
Rising US-China Tensions After Trump's Re-election
Risks: $36 Trillion US Debt and More
Desiring Korea's Help to Revive Shipbuilding,
Yet Imposing Punitive Tariffs: A Contradiction
Cryptocurrencies Not Yet a Real Threat

As the world entered the 20th century, the dominance of global currency shifted from the British pound to the US dollar. After World War II, the United States, leveraging its overwhelming economic power, became the center of the global economy, accounting for 36% of the world's gross domestic product (GDP) in 1950. The postwar fixed exchange rate system established in 1944 placed the US dollar at the heart of the global monetary system, requiring countries to peg their currencies to the dollar to maintain exchange rates. To do this, nations accumulated dollars as foreign exchange reserves, and as a result, the world economy gradually became closely intertwined with the US economy.

Getty Images Bank

An incident that took place in Washington, D.C. in 1971 symbolically illustrates this trend. That summer, European finance ministers gathered in the United States to protest America's unilateral suspension of gold convertibility. This move caused the value of US bonds held by European countries to decline. However, John Connally, Treasury Secretary under the Nixon administration, responded cynically, saying, "The dollar is our currency, but your problem." This meant that dollar policy was an American prerogative, and other countries would have to bear any disadvantages. This moment became an enduring symbol of dollar hegemony for more than half a century.

The author, a professor of international economics at Harvard University and former chief economist at the International Monetary Fund (IMF), explores how the US dollar established itself as the world's key currency over the past 70 years. Since being officially designated as the reserve currency under the Bretton Woods system in 1944, the dollar has remained firmly entrenched as the "currency of the world" through the Nixon-era suspension of gold convertibility and the collapse of the system, the 2008 financial crisis, and the US-China trade war of the 2020s. Currently, 90% of all global foreign exchange transactions involve the dollar, and over 60% of global foreign exchange reserves are held in dollars.

The US dollar has led global economic dominance based on overwhelming economic power and high national credibility. Its highly developed trade and financial systems have further strengthened the dollar's liquidity and status, giving it an influence far surpassing that of the Dutch guilder or the British pound in the past.

Of course, there have been attempts to challenge the dollar's supremacy, with the Soviet ruble, Japanese yen, and European euro being notable examples. However, the author asserts, "All of these currencies challenged the dollar's status, but the language of the global economy ultimately became the dollar."

He identifies recent de-dollarization movements led by China and the rise of cryptocurrencies as new variables threatening dollar hegemony. Until now, China has maintained exchange rate stability by pegging the yuan to the dollar, but recently, signs of change have emerged as BRICS countries expand yuan-based settlements. US allies are also seeking to reduce their reliance on the dollar and pursue currency diversification strategies.

According to the author, the dollar's status as the global reserve currency remains intact, but it has been on a downward trajectory since peaking in 2015. He analyzes that if US-China tensions intensify following the re-election of President Donald Trump, China is highly likely to leave the dollar bloc. He warns, "It could be an event where an entire continent breaks away from the dollar-centric order."

Additionally, the United States' $36 trillion federal debt, annual interest payments exceeding $1 trillion, the weakening independence of the Federal Reserve, and political polarization are cited as potential risks undermining trust in the dollar. The Trump administration's protectionist policies and weak-dollar stance are actually accelerating de-dollarization in other countries, and the author warns that the US must confront the "love-hate relationship" its allies have with American hegemony.

Regarding Korea, he evaluates, "Korea is both a US ally and a bulwark against Asian dictatorships," and considers it a country that will significantly influence the future of the dollar bloc. At the same time, he criticizes the contradictory attitude of President Trump, who, while recognizing the need for Korea's support to foster the US shipbuilding industry, still seeks to impose punitive tariffs.

Regarding the potential for cryptocurrencies or digital currencies to threaten the dollar's status, the author takes a cautious stance. Although the market has already reached $20 trillion, he argues that they still lack the institutional influence to disrupt taxation or monetary policy. He emphasizes, "Even Mongolia's currency, once made from tree bark, was backed by the power of Kublai Khan," underscoring that the strength of money has always been tied to the power of empires.

Ultimately, the book's core message is clear: dollar hegemony is already on the decline, and if Trump-style policy missteps continue, its downfall could come faster than expected. Drawing on his research and experience, the author vividly unpacks the complex trends of international macroeconomics and offers insights into the changing global monetary order.

After the Dollar: The Coming Global Monetary Order | Kenneth Rogoff | Willbook | 456 pages | 29,800 won