How geopolitical crises impact the value of the dollar and what is the future of this currency?

Abstract

This dissertation provides an overview of the factors that have contributed to the dominance of the U.S. dollar as the world's leading currency and explores potential challenges that may affect its future position. The historical trajectory of the dollar's ascent to global dominance is examined, acknowledging the challenges it initially faced due to restrictive internal policies. However, pivotal geopolitical events, such as the U.S. Marshall Plan, played a crucial role in solidifying the dollar's position by binding Europe to the capitalist world and preventing the spread of communism. The Vietnam War, although perceived as a defeat, showcased the U.S.'s ability to finance crises and deter communism, albeit at the expense of its own economy. This experience taught the U.S. the value of diplomatic power over military intervention, leading to a more cautious approach in future conflicts. The introduction of the Petro-dollar system marked a turning point for the dollar, making it universal and aiding the U.S. in its race against the Soviet Union during the Cold War. The dollar's circulation and use as a means of payment for oil bolstered foreign investment in U.S. bonds and securities, financing the country's ambitious endeavors. Subsequently, the U.S.'s involvement in Afghanistan and Iraq, while incurring significant costs, contributed to sustaining its economy through military expenditures and securing strategic interests in the regions. However, emerging factors such as the rise of China, the emergence of BRICS countries, and the war in Ukraine pose potential challenges to the dollar's dominant status. These elements suggest a shifting global landscape, potentially signaling an end to the unipolar world led by the U.S. The divergence in economic and development goals between the BRICS countries and the West has the potential to reshape the international monetary order. While the future role of the dollar remains uncertain, the prevailing political instability worldwide raises the possibility of a multipolar world with emerging countries asserting new means of payment. The outcome will depend on how these factors evolve and the actions taken by major global players. In conclusion, this dissertation provides an overview of the historical events, economic dynamics, and geopolitical shifts that have shaped the dominance of the U.S. dollar as the world's primary currency. It also highlights potential challenges that could lead to a reconfiguration of the international monetary landscape, emphasizing the need for ongoing observation and analysis of global developments.