Putting the Dollar in Jeopardy
For 70 years, a key element of American power has been the dollar’s standing as the world’s premier currency. But Washington’s repeated use of economic sanctions as a foreign policy weapon has encouraged China and other powers to consider financial alternatives, write Flynt and Hillary Mann Leverett.
By Flynt Leverett and Hillary Mann Leverett
Since World War II, America’s geopolitical supremacy has rested not only on military might, but also on the dollar’s standing as the world’s leading transactional and reserve currency. Economically, dollar primacy extracts “seignorage” — the difference between the cost of printing money and its value — from other countries, and minimizes U.S. firms’ exchange rate risk.
Its real importance, though, is strategic: dollar primacy lets America cover its chronic current account and fiscal deficits by issuing more of its own currency — precisely how Washington has funded its hard power projection for over half a century.
Since the 1970s, a pillar of dollar primacy has been the greenback’s role as the dominant currency in which oil and gas are priced, and in which international hydrocarbon sales are invoiced and settled. This helps keep worldwide dollar demand high. It also feeds energy producers’ accumulation of dollar surpluses that reinforce the dollar’s standing as the world’s premier reserve asset, and that can be “recycled” into the U.S. economy to cover American deficits.
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Flynt Leverett served as a Middle East expert on George W. Bush’s National Security Council staff until the Iraq War and worked previously at the State Department and at the Central Intelligence Agency. Hillary Mann Leverett was the NSC expert on Iran and – from 2001 to 2003 – was one of only a few U.S. diplomats authorized to negotiate with the Iranians over Afghanistan, al-Qaeda and Iraq. They are authors of Going to Tehran.
http://consortiumnews.com/2014/08/01/putting-the-dollar-in-jeopardy/
