Why Does the World Put Up With the Dollar?

The global economy depends on the U.S. dollar, even when the U.S. acts erratically.

The most powerful tool of the American imperium is not, as is generally supposed, its military, but rather its currency. Other nations (China, India) possess more troops, but none possesses more legal tender. There were 57,000,000,000 dollar-denominated bills in circulation last year. By comparison, euro-denominated bills—the world’s second-most-widely circulated currency, minted not by one nation but by 21—numbered 31,000,000,000. The combined monetary value of the 57 billion greenbacks was $2.4 trillion; for the 31 billion euro notes, $1.6 trillion.

And that’s just paper money. How much of your net worth resides in your wallet? In our increasingly cashless society, I sometimes go months absentmindedly forgetting to pull dead-tree dollars out of my ATM. Serious money resides in banks and other financial institutions. Economists speak of “reserve currencies,” or currencies held round the world by central banks and other government institutions like our Federal Reserve. These reserves can be paper currency or paper bonds or gold bars, but mostly they’re just blips on a computer screen. Well over half of this money, or about $7 trillion, consists of U.S. dollars. Euros account for less than $3 trillion. Most international trade occurs in dollars, too, not just in the United States but throughout the world, and when foreign corporations hedge against currency fluctuations, they do so overwhelmingly with dollars. In effect, the dollar is not merely American currency; it’s a global currency, too.

The dollar has ruled the world for the past 80 years, and in the past 50, it has displaced gold as the anchor of the world economy. As a consequence, Republican presidents have been able to cut taxes on the rich without reducing government spending to any meaningful degree. Economic logic dictates that, if the United States runs up irresponsibly large budget deficits—as of March 31 the deficit exceeds 100 percent of gross domestic product—the result will be cripplingly high interest rates as the bond market becomes glutted with U.S. debt in the form of Treasury bonds. But that hasn’t happened, because the global appetite for Treasurys has been limitless. Debt is America’s leading export.

With countries as with people, there’s bound to be some point at which so much debt accrues that the debtor can’t repay. Over the past four decades, deficit hawks have been consistently wrong about where, for the United States, that point lies, and in the view of some modern monetary theorists, no such point exists. A more likely answer is that that point, though more distant than previously we dared believe, will one day be stumbled upon, and when it does the United States will renege on its obligations through either hyperinflation (thereby reducing its creditors’ expected return) or outright default.

Foreigners who buy U.S. Treasurys aren’t stupid; they’re well aware of this danger. Yet they continue to buy Treasurys, bolstering what Valéry Giscard ­d’Estaing, when he was France’s minister of finance in the 1960s (later he was president), described resentfully as America’s privilège exorbitant. The U.S. government, Giscard complained, can manage its economy however it wishes and never diminish the dollar’s dominance. In 1971, for instance, President Richard Nixon wished unilaterally to tear up the 1944 Bretton Woods agreement by taking the United States off the gold standard. Treasury Secretary John Connally casually told emissaries from our leading trade partners: “The dollar is our currency, but it’s your problem.” It was our trading partners’ problem because their currencies’ value was now pegged to a dollar that was losing value. But did our trade partners uncouple from the United States? They did not.

At the moment, President Donald Trump is doing his inadvertent damnedest to throw America’s exorbitant privilege away. During the brief period of extreme financial turmoil that followed Trump’s announcement of his “Liberation Day” global tariffs in April 2025 (before a market tumble persuaded Trump to delay their implementation to permit negotiations), there was no rush to buy Treasurys; instead, there was a sell-off. That prompted speculation that the dollar would never again be a safe haven. Trump also threatened not-so-obliquely to default on the nation’s debt. Overall, Trump’s presidency has driven the dollar’s value down about 10 percent. But in spite of all this, the dollar retains its dominance in global finance. It’s harder to kill than Rasputin.

Why do other countries put up with our dollar? Why do foreign investors enable exorbitant privilege no matter what?

The biggest reason the U.S. dollar reigns supreme is liquidity. When you have a lot of money, you’ve got to stash it someplace, and your choice of where will depend a lot on how easily you can extract it when you need to. As the Harvard economist Kenneth Rogoff puts it in Our Dollar, Your Problem, “U.S. Treasury debt is very easy to sell quickly and without excessive transaction costs.” It’s easy to extract because there’s so goddamned much of it. With the U.S. national debt totaling about $39 trillion, nobody who sells a........

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