Why, When, and How the US Dollar Was Established as World Money (2019.10)

• Author : Kyuteg Lim
• Journal : Peace Studies
• Publisher : Korea University Peace & Democracy Institute
• Volume : 27(2)
• Publication Date : October, 2019
• Abstract : In the International Political Economy literature, it has been argued that either the strength of US national economy, US political power, or institutional developments determined the universal acceptance of the US dollar during the Bretton Woods era. These explanations do not appreciate the role of the US dollar outside the sphere of market exchange and the system of inter-states. Drawing on insights from the heterodox tradition of monetary thought, this paper argues that European states played a decisive role in developing the US dollar as world money in two ways. As European states used the US dollar as abstract measure of value for rebuilding their war-torn economies and issuing various debts, these European practices led to the institutionalization of the US dollar as world measure of value at the end of the Bretton Woods system. Furthermore, as European states began to place US dollar reserves in the Eurodollar market from the early 1960s, the dynamic of the Eurodollar market developed the US dollar as cross-border credit and debt relations in the early 1970s. In particular, US Treasury debts became ‘risk’-free assets crucial to financial globalization processes.

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