Will King Dollar Reign Forever?

A country’s status as a great power is associated with many things: control of vital trade routes, technological superiority, a type of cultural ascendancy, and the ability to fight and win wars on a global scale, to name just a few. Underlying all these things, however, is a nation’s economic strength. Britain would not have been the nineteenth century’s superpower without its dynamic economy. Nor would the United States be the postwar world’s dominant power minus its sheer economic clout.

One sign of a nation’s strength and place in the world more generally is how other countries treat its currency. Throughout the nineteenth century, the British pound sterling was highly valued and widely used both within and outside the British Empire. Likewise, the 1944 Bretton Woods agreement, in which nations agreed to establish the convertibility of their currencies into U.S. dollars, reflected America’s political and economic supremacy, as well as widespread awareness (including among British policymakers) of the visible and rapid decline of Britain’s status as a great power.

Fast forward to the twenty-first century, and there is no shortage of commentators suggesting that “King Dollar,” as it came to be called, may be on its way out as the world’s dominant reserve currency. After all, the United States finds itself in a serious geopolitical contest with China, but also, and perhaps more importantly, facing serious internal challenges: most notably, the US government’s inability to contain the growth of its public debt and the public’s disinclination to accept measures which would bring that debt under control. Others, however, are not so sure. That includes the distinguished author and economics journalist Paul Blustein.

I have been reading Blustein’s work since he authored one of the most perceptive analyses of the Argentine economy’s collapse between 1989 and 2002. In King Dollar: The Past and Future of the World’s Dominant Currency (2025), Blustein brings together the same attention to detail and breadth of perspective to argue, “contra the doomsayers’ forecasts, that the dollar’s global dominance is almost impregnable, and will remain so barring catastrophic missteps by the US government.”

As Blustein himself affirms, the caveat expressed in the last seven words of that sentence is an important one. The possibility that American policymakers will make serious errors cannot be ruled out, not least in our time when populists of the left and right increasingly dominate public discourse. This reality is the wild card in Blustein’s discussion of the dollar’s future.

America’s Success, Others Failure

Understanding the current debate about the dollar’s present and future requires an understanding of how it rose to global supremacy. Few would have predicted that the currency created by the Coinage Act of 1792 for a barely united gaggle of quarrelsome states on the East Coast of the North American continent would eventually dwarf in global significance the currencies of the kingdoms of Britain, Spain, and France.

The US economy’s spectacular growth, especially after the Civil War, is the indispensable long-term factor driving that change. Yet, there were also specific decisions that made significant contributions. One was the establishment of the Federal Reserve in 1913, primarily because it helped put Wall Street on par with the City of London as the world’s lender of choice. But Blustein is surely correct to state that the single most important event that “tipped the geoeconomic balance in favor of the United States” was “the eruption of World War I and the associated laying of waste to Europe.” The US dollar may not have immediately become the world’s preferred reserve currency. But the war and the subsequent struggle of European nations to master a series of economic and financial crises forever undermined the international standing of the pound, the franc, and the mark. So goes a country’s economy and political stability, so goes the comparative importance of its currency.

The story of the US dollar’s rise is therefore not only about America’s rise to global political preeminence. It also concerns the relative economic decline of other countries vis-à-vis the US economy, and the advantages that this has conferred upon the United States. These benefits to America did not go unnoticed by the leaders of other nations. In the mid-1960s, France’s future president Valéry Giscard d’Estaing denounced the dollar’s “exorbitant privilege” while serving as French finance minister. International support, Blustein points out, for the dollar’s international status was steadily declining throughout that decade. By the 1970s, some American policymakers had concluded that the dollar’s position was increasingly untenable. This, Blustein states, “was an early example of the dollar’s death being greatly exaggerated.”

Over the past forty years, there were moments when the dollar’s hold on the reserve currency throne seemed tenuous. Here, Japan’s yen and the EU’s euro enter the story. But any prospect of either of these currencies supplanting the dollar was terminated by the Japanese and EU economies entering prolonged periods of malaise in 1990 and 2009, respectively. Blustein also makes a point of reminding his readers that some commentators in the early 2010s stated that China’s yuan was on the brink of dethroning the dollar’s preeminence. This, however, never transpired, and a major reason for that, Blustein demonstrates, was Beijing’s decision from 2012 onwards to start recentralizing China’s economy under more direct state control and the associated winding back of any semblance of an already very limited commitment to the rule of law and judicial independence. The effects of these changes went beyond discouraging foreign investment. They were bound to raise questions in many people’s minds about the Chinese economy’s long-term future and thus the yuan’s future saliency in the global economy.

Undermining Ourselves

A consistent theme marking King Dollar is that maintenance of its regal status in the global economy is threatened less by events and governments abroad than by two other factors. The first is whether the fundamentals of the US economy remain strong. The second concerns the quality of decisions made by US policymakers, including those in the White House. Successive presidential administrations, Blustein notes, have not been averse to viewing the US dollar as part of America’s toolbox as it seeks to achieve its geopolitical objectives. After all, if you control the world’s preeminent reserve currency and are also a global power, using financial mechanisms to get your way is tempting, in part because they can be an alternative to the use of military force. The difficulty with using the type of financial sanctions associated with being the world’s premier reserve currency is that, like all sanctions, their effectiveness is limited and tends to wane over time as countries work out how to circumvent them.

More broadly, Blustein maintains that the dollar’s global hegemony is likely to persist, given the reality that some of the world’s biggest economies, including China’s, have their own significant problems. That, in turn, means that America is likely to continue reaping significant advantages from the dollar’s unique position. As Blustein observes, “the worldwide demand for Treasuries surely helps to keep interest rates in the United States lower than they otherwise would be.”

The shadow overhanging all this, according to Blustein, is America’s dismal fiscal outlook. Blustein is not a deficit hawk and is skeptical of austerity policies, which he describes as “dumb, almost masochistically so.” Nonetheless, as he surveys the United States’ fiscal future, Blustein sees it as “dismal.” To his mind, “It would be hubristic, to say the least, for Washington to stay on its current fiscal path based on confidence on the world’s readiness to provide finance on generous terms ad infinitum.”

Compounding the problem, Blustein comments, is the present incapacity of the US political system to address America’s public debt difficulty. Blustein attributes the bulk of the blame to Republicans (I believe the blame is shared across the political spectrum), but also stresses that the US political system empowers both parties to use legislative tactics “to protect their priorities from measures that would meaningfully shrink the gap between outlays and revenues.” That reflects, as the ratings agency Fitch stated when it downgraded US Treasuries in August 2023, “a steady deterioration in standards of governance.”

Ongoing Dominance or Incoming Doom?

Mediocre governance in the political realm often seeps into other spheres of life. That includes America’s economy. The US economy may well be presently doing much better than its Japanese and European rivals, and no amount of fudging of official statistics can disguise the fact that China’s economy has deep problems that a highly centralized authoritarian state cannot fix because state authoritarianism is at the core of those very same economic difficulties. But dysfunctional political institutions can also cause enormous damage to the American economy, and there is no reason to believe that America’s currency hegemony can be shielded from that malaise.

And then there are events, not all of which are controllable by even the most astute policymakers, whether in Washington or Beijing. If, for example, tensions between China and the United States escalate to the point whereby nations find themselves having to make hard decisions about whom they will choose to align themselves, Blustein states, it is conceivable that much of the world could find itself split into two economic blocs, with, presumably, those on the Sinophile side opting—or being forced to opt—for the yuan as their preferred reserve currency.

Blustein underscores that he hopes such things do not come to pass. So much presently depends, he maintains, on “whether the United States will act as a responsible steward of the great power that the dollar confers.” The historical record as outlined throughout Blustein’s book suggests that, in many cases, many American policymakers have behaved responsibly, with the results being beneficial for both America and other democratic market-oriented nations with whom the postwar United States has enjoyed close economic and political relations.

Presently, there is no sign that any other country’s currency is even close to usurping the dollar’s authority in global markets. But it must have also seemed to countries like Spain, the Netherlands, and Britain during their times of economic and political ascendency that the Spanish silver peso, the Dutch guilder, and the British pound were in their ways unassailable. In the end, the longevity of the dollar’s reign is in American hands. The real question is whether those hands will be wise enough to maintain King Dollar on his global throne.

Samuel Gregg is the Friedrich Hayek Chair in Economics and Economic History at the American Institute for Economic Research.