THe CRedIT CRIsIs and THe dOLLaR 25
For any other country a financial crisis of this magnitude wouldhave sparked a full-scale currency crisis. Why then has the deepeningof a crisis centered in the United States actually seen the reverse, thestrengthening of the dollar? The answer lies in the continuing role of the dollar as international money.In “Finance, Imperialism, and the Hegemony of the Dollar,” in theApril 2008 issue of
, I argued that the privileged role of the dollar as international money has been critical to U.S. imperialisthegemony. The explosion of private financial flows globally helped theUnited States preserve and establish its pivotal place at the center of the international financial markets and impose a “dollar standard.”However, this process also created the conditions for its own unravel-ing. The present crisis, an outcome of this unfettered growth and ris-ing dominance of finance, lays bare the contradictions of the mecha-nisms of the dollar standard.Two developments summarize the process so far: (1) When panic hit,the U.S. dollar’s status as “international money” asserted itself, and thedollar rose against all currencies other than the yen. (2) The implosionof the financial system, however, has threatened the foundation of dollarhegemony—its central role in the proliferating web of global privatecapital flows. The current crisis is thus also potentially a crisis of dollarhegemony.
The Bretton Woods negotiations at the end of the Second World Warpaved the way for establishing the dominance of the dollar as interna-tional money. This role was sustained by the confidence that the UnitedStates with its vast reserves of gold would honor the commitment toprovide gold to foreign central banks in exchange for dollars at a fixedrate of $35 per ounce. By the end of the sixties, the growing trade deficitand the burdens of its military interventions in Vietnam created a hugedollar overhang abroad. In the face of increased demands for gold in ex-change for dollars the United States unilaterally abandoned gold convert-ibility. This, however, did not lead to the dismantling of dollar hegemony.Instead, the refashioning of the international monetary system into a“floating dollar standard” in the post–Bretton Woods period was associ-ated with the aggressive pursuit of liberalized financial markets in orderto encourage private international capital flows denominated in dollars.In the 1970s the Eurodollar markets served as the principal means of recycling oil surpluses from the oil exporters to developing economies,