"Crawling" de-dollarization of the world economy

Abstract

With the death of the Bretton Woods system in 1971 the world has entered in an era of fiat money. As Andrey Burovski once said, the United States created an empire of completely different type — a money empire. The dollar has become a backbone of the world economy, and the Federal Reserve System — a central bank of the world. The power of the System, sometimes limited by Washington’s foreign policy interests, allows America to control who gets what and when. The source of the power is the right of the System to create nation’s currency (in fi nancial terms) and change bank reserves. Absent global political and economic turmoils, weakening the dollar as preferred storage of wealth and means of payment relative to alternative currencies, the dollar will dominate world trade and fi nance in the foreseeable future. Meanwhile challenges on the part of alternative currencies are limited to what may be called "crawling" de-dollarization. The American economy is vulnerable to various shocks of the world economy, and the Federal Reserve System closely cooperates with monetary authorities of many countries in order to protect fi nancial stability overseas. Exporting the dollar by means of swap lines, the System behaves as the central bank of the entire world. These "pipelines" of emergency liquidity connect the United States with its major trading partners and in the end serve American economic interests. America needs world trade as well, that is why the System opens to central bank access to unlimited supply of American money (which it issues) as if they are domestic banks looking for loans.