A term coined by Henry C.K. Liu to describe the US dollar in the global economy is Dollar hegemony;it is a form of monetary hegemony. The term was popularized by Liu in a widely circulated and quoted article "Dollar Hegemony has to go" in Asia Times on April 11, 2002. Then after that this article was quoted by William Clark in January 2003, Immanuel Wallerstein of the Fernand Braudel Center on June 1, 2003, Greg Moses, James Robertson in April 2004 and subsequently by many others.
Definition
A geopolitical phenomenon of the 1990s is described by this term in which the U.S. dollar, a fiat currency, became the primary reserve currency internationally. Dollar hegemony has been allowed by three developments allowed to emerge over a span of two decades.
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The Bretton Woods regime that was established in 1945 which is a fixed exchange rate regime based on a gold-backed dollar.The cross-border flow of funds was not considered necessary or desirable by US for promoting trade or economic development.In 1971, the Bretton Woods regime was abandoned by President Richard Nixon and he suspended the dollar’s peg to gold. This was done because U.S. fiscal deficits from overseas spending caused a massive drain in U.S. gold holdings.
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The denomination of oil in dollars after the 1973 Middle East oil crisis was the second development.
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The emergence of deregulated global financial markets after the Cold War that made cross-border flow of funds routine was the third development.
Speculative attacks were made on the exchange rates of currencies by a general relaxation of capital and foreign exchange control in the context of free-floating exchange rates. the emergence of dollar hegemony in the 1990s, was permitted by these three developments.
Since then all central banks have been forced to hold more dollar reserves than they otherwise need to prevent any sudden speculative attacks on their currencies in financial markets.
It has been argued by Mr Liu argues that thus "dollar hegemony" prevents the exporting nations from spending domestically the dollars that are earned from the U.S. trade deficit and it forces them to finance the U.S. capital account surplus, thus it means that they are shipping real wealth to the U.S. in exchange for the privilege of financing U.S. debt to further develop the U.S. economy.
You must note that a controversial point of view is described by most of the above paragraph. Despite of all the facts, at the end of the 20th century it is an undisputed fact that the US dollar is the most important reserve currency in the world. As of 2007, it still posses the largest share (65.7%) of foreign reserve holdings, with the euro some distance behind at 25.2%. However since 2000, there is a fall in dollar share and a rise in the euro share, though the trend is very gentle.
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