Paul Samuelson , the US economist opines that due to excessive demand for USD , its Federal Reserve can issue USD at lowest possible interest rate without any default risk . With interest rate changes , it can influence dollar supply in all the countries . Moreover , the deficit in the current account of US will not reduce USD exchange rate . Therefore , USD is considered by the world as a confident , secure asset . It can easily get trillions of USD as debt from global capital market , says Paul Samuelson . This clearly indicates that the dollar domination is useful to dispense the crisis of American capitalist to the entire world .
As high as 80 percent of $ 100 billions issued by US are in outside circulation . The value of US Treasury market value is as large as $ 23 trillion . This is double to the Japan government bond market which is in second place . The value of US foreign treasury holdings is $ 7.74 trillions .
US , which is dictating global finance market , gives loans to its corporates at lowest rate of interest . Therefore , the growth rate of world ’ s foreign direct investment in 2021 is 77 percent with $ 1.65 trillion in which the rate of growth of US is as high as 114 percent with , $ 323 billions . The estimates of UNCTAD further shows that 39 percent of global debt is in USD . The finance capital under the leadership of US is strongly spreading in emerging economies . This makes it easy to transfer the wealth of native capitalist to global rich continuously through the purchase of shares of finance capital of respective companies . Further , the flow of the movement of USD to the third world is determined by the US rate of interest when US interest rate rises , then dollars will move to US and conversely , when it declines dollars will move to third world . Thus , the flow of foreign investment in third world countries is always unreliable , uncertain and unpredictable . Therefore , always it is a critical task for third world countries as to how to attract and retain foreign investment . In the direction of IMF and World Bank ,
June - 2022 these countries consistently announce and implement various concessions and incentives to foreign investment . The third world countries as dependent formations caught in the strong vicious circle of finance capital of imperialist exploitative forces is the bitter reality .
It is a well known fact that any crisis will strengthen dominant systems and classes . Therefore , not only in the period of 2008 subprime crisis but also in covid-19 pandemic , the demand for USD excessively increased in unprecedented way . Consequently , dollar domination strengthened further . USD as Global Currency - Third World Countries
After the Second World War , the Bretton Woods Conference of Nations of World in 1944 seriously discussed the need of a strong monetary system properly regulated by rules and institutions . The agreement accepted the USD as global currency . Consequently , US strengthened as global financial superpower since 1950 ’ s . By the time of Second World War , US has a strong gold market with a glut of gold reserves and started exporting investments in the place of commodities . During the war period , US provided more and more loans to alliance countries and promised to extend loans to defeated countries for their reconstruction . Thus , US could pressurize all the nations to accept USD as global currency . In the conference all the 44 nations except USSR accepted dollar dominance . This clearly proved that the nations with socialist systems will have the courage to confront any superpower on the basis of issue without yielding to power tactics .
J . M Keynes is known for his strong policy suggestions to solve 1930 ’ s Great Depression of imperialist nations . He participated in the Bretton Woods Conference on behalf of Britain . He proposed a ‘ currency neutral system ’ without the domination of any currency . Accordingly , every country should have an account called ‘ Bancor ’ to enter credit and liabilities of its exports and imports . If the deficit exceeds a prescribed limit , then exchange rate of the currency will be devalued . US rejected this proposal bluntly . No country dared to question America ’ s decision . Thus , US could use all methods of diplomacy to pressurize the nations to accept USD as global currency .
In this , all the countries pegged the exchange rate of their currencies to USD now , it is the anchor of the system . The US government guaranteed that other central banks at any time , they could sell their USD reserves at a fixed rate of gold i . e 35 USD per ounce of gold . Thus , as per the agreement , USD reserves possessed by any central bank can be converted into gold by selling them to US . For Vietnam War , US could print dollars excessively . It could collect deposits from all the nations , sold bonds and securities . All this resulted in the erosion of gold reserves in US . Therefore , many countries demanded US that it should give back equivalent gold for the USD reserves that they possess . No dominant country / class will honour its own promise when it causes inconvenience . Therefore , the then president of US Richard Nixon bluntly declared that they will not give equivalent gold . The entire world accepted it obediently . However , this resulted in the end of gold standard in printing currency . Fiat currency started . Further , fixed exchange rate is replaced by flexible exchange rate .
It is wonder to notice that US rejection to give equivalent gold to USD possessed by various central banks , has not been questioned by any country . The dollar domination continued and firmly established and strengthened as global currency . Effect on Third World Countries
USD is the domestic currency of US and at the same time it is global currency also . Therefore , it can print any quantity of USD simply by saying IOU and will spend excessively on military , research and development of war related equipment . It creates war fear in all the countries and sells weapons and war equipment in the entire globe . It gives enormous loans
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