Why Does the World Put Up With the Dollar?

The most powerful tool of the American imperium is not, as is generally supposed, its military, but rather its currency. Other nations (China, India) possess more troops, but none possesses more legal tender. There were 57,000,000,000 dollar-denominated bills in circulation last year. By comparison, euro-denominated bills—the world’s second-most-widely circulated currency, minted not by one nation but by 21—numbered 31,000,000,000. The combined monetary value of the 57 billion greenbacks was $2.4 trillion; for the 31 billion euro notes, $1.6 trillion.

And that’s just paper money. How much of your net worth resides in your wallet? In our increasingly cashless society, I sometimes go months absentmindedly forgetting to pull dead-tree dollars out of my ATM. Serious money resides in banks and other financial institutions. Economists speak of “reserve currencies,” or currencies held round the world by central banks and other government institutions like our Federal Reserve. These reserves can be paper currency or paper bonds or gold bars, but mostly they’re just blips on a computer screen. Well over half of this money, or about $7 trillion, consists of U.S. dollars. Euros account for less than $3 trillion. Most international trade occurs in dollars, too, not just in the United States but throughout the world, and when foreign corporations hedge against currency fluctuations, they do so overwhelmingly with dollars. In effect, the dollar is not merely American currency; it’s a global currency, too.

The dollar has ruled the world for the past 80 years, and in the past 50, it has displaced gold as the anchor of the world economy. As a consequence, Republican presidents have been able to cut taxes on the rich without reducing government spending to any meaningful degree. Economic logic dictates that, if the United States runs up irresponsibly large budget deficits—as of March 31 the deficit exceeds 100 percent of gross domestic product—the result will be cripplingly high interest rates as the bond market becomes glutted with U.S. debt in the form of Treasury bonds. But that hasn’t happened, because the global appetite for Treasurys has been limitless. Debt is America’s leading export.

With countries as with people, there’s bound to be some point at which so much debt accrues that the debtor can’t repay. Over the past four decades, deficit hawks have been consistently wrong about where, for the United States, that point lies, and in the view of some modern monetary theorists, no such point exists. A more likely answer is that that point, though more distant than previously we dared believe, will one day be stumbled upon, and when it does the United States will renege on its obligations through either hyperinflation (thereby reducing its creditors’ expected return) or outright default.

Foreigners who buy U.S. Treasurys aren’t stupid; they’re well aware of this danger. Yet they continue to buy Treasurys, bolstering what Valéry Giscard ­d’Estaing, when he was France’s minister of finance in the 1960s (later he was president), described resentfully as America’s privilège exorbitant. The U.S. government, Giscard complained, can manage its economy however it wishes and never diminish the dollar’s dominance. In 1971, for instance, President Richard Nixon wished unilaterally to tear up the 1944 Bretton Woods agreement by taking the United States off the gold standard. Treasury Secretary John Connally casually told emissaries from our leading trade partners: “The dollar is our currency, but it’s your problem.” It was our trading partners’ problem because their currencies’ value was now pegged to a dollar that was losing value. But did our trade partners uncouple from the United States? They did not.

At the moment, President Donald Trump is doing his inadvertent damnedest to throw America’s exorbitant privilege away. During the brief period of extreme financial turmoil that followed Trump’s announcement of his “Liberation Day” global tariffs in April 2025 (before a market tumble persuaded Trump to delay their implementation to permit negotiations), there was no rush to buy Treasurys; instead, there was a sell-off. That prompted speculation that the dollar would never again be a safe haven. Trump also threatened not-so-obliquely to default on the nation’s debt. Overall, Trump’s presidency has driven the dollar’s value down about 10 percent. But in spite of all this, the dollar retains its dominance in global finance. It’s harder to kill than Rasputin.

Why do other countries put up with our dollar? Why do foreign investors enable exorbitant privilege no matter what?

The biggest reason the U.S. dollar reigns supreme is liquidity. When you have a lot of money, you’ve got to stash it someplace, and your choice of where will depend a lot on how easily you can extract it when you need to. As the Harvard economist Kenneth Rogoff puts it in Our Dollar, Your Problem, “U.S. Treasury debt is very easy to sell quickly and without excessive transaction costs.” It’s easy to extract because there’s so goddamned much of it. With the U.S. national debt totaling about $39 trillion, nobody who sells a lot of Treasurys in a hurry need worry that doing so will drive down the price.

Why do other countries put up with our dollar? Why do foreign investors enable exorbitant privilege no matter what?

Another reason foreigners put their money in Treasurys is stability. The dollar’s governing structure is more consistent than that of the multilateral euro, and the rule of law is much stronger in the United States than in, for instance, China, whose renminbi might otherwise be an excellent substitute. Granted, the rule of law is taking a heavy beating under Trump, including within the realm of finance. But the world operates under the TACO hypothesis (“Trump Always Chickens Out”) that Trump’s most erratic governing impulses will always be checked by adverse market signals.

Another check on Trump has been the independence of the Federal Reserve. The primacy of the dollar makes the Fed chair a sort of central banker to the entire world. This extraordinary power has always created tension between presidents and the Fed. Trump differs in carrying it to an extreme by, for instance, attempting to fire Fed Governor Lisa Cook (resisted thus far by the courts) and harassing then–Fed Chair Jerome Powell with the threat of frivolous prosecution (ended by the refusal of Republican Senator Thom Tillis of North Carolina to advance Trump’s nomination of Kevin Warsh as Powell’s successor, until the investigation was dropped). Should Trump successfully gain control of a previously independent Fed and set interest rates irresponsibly low even as inflation rises—which is what Trump wants—then Treasurys will get harder to sell.

Even if that happens, though, it remains likely that the dollar will maintain its global primacy. A notable test was the Great Inflation of the 1970s. In 1973, Arab members of the Organization of the Petroleum Exporting Countries, or OPEC, imposed an oil embargo against the United States. These countries were already angered by Nixon’s ending the gold standard two years earlier, because it reduced the value of their petrodollars. Now they pushed inflation even higher because they were furious that the United States supported Israel in the Yom Kippur War against Egypt and Syria. The embargo quadrupled the price of oil, creating an enormous windfall for Saudi Arabia, and the Saudis had to figure out where to put it. You can guess the rest. In secret negotiations, Secretary of State Henry Kissinger and Treasury Secretary William Simon persuaded the Saudis to park it (shh!) in Treasurys sold on uniquely favorable terms—never mind that this benefited the same United States that the Saudis were trying to punish. International skirmishes come and go, but the dollar is forever.

The paradoxes multiply. Foreign nations nearly always buy Treasurys in times of international turmoil … even when that turmoil originates in the United States! Remember the 2008 global financial crisis? “The bulk of the misfeasance, nonfeasance, and malfeasance,” the former Washington Post and Wall Street Journal reporter Paul Blustein explains in King Dollar, “stemmed from problems in the United States,” mainly through reckless securitizing of mortgages on houses that buyers couldn’t afford. “Yet money rushed into the dollar.” Heads we win, tails you lose.

For the United States, the dollar isn’t only a tool for borrowing on the cheap; more ominously, it’s what Rogoff calls “a de facto branch of the U.S. armed services.” In recent decades, presidents and the Treasury have gotten bolder about weaponizing the dollar against enemies through the imposition of economic sanctions. If we’ve been slow to notice this, that’s probably because the only high-profile target we’ve seen surrender unequivocally to sanctions is South Africa’s apartheid regime. Cuba, the Soviet Union, Iraq, Russia, and Iran all found ways to defy American sanctions.

But shift your eyes from our enemies to our friends, and you’ll see how powerful sanctions can be. The United States uses the threat of secondary sanctions against U.S. allies to compel them to participate in our embargoes. Under Trump, such bullying of America’s friends has been routine. Thus when Trump in 2018 declared, largely out of petty personal animus toward President Barack Obama, that we would withdraw from the multilateral agreement restricting Iran’s nuclear program and reimpose sanctions, the European Union declined to reimpose sanctions alongside us. But because Trump’s secondary sanctions barred U.S. banks from engaging in any transactions with foreign companies that did business with Iran—effectively exiling those companies not only from the United States but also from other countries with which they bought and sold in dollars—foreign firms were forced to comply with the sanctions.

In King Dollar, Blustein argues persuasively that the dollar will remain the world’s reserve currency for the foreseeable future. In Our Dollar, Your Problem, Rogoff is less confident about that. “It would be folly,” Rogoff writes, “to ignore the many ‘this time is different’ Pax Dollar assumptions built into today’s markets that may well be upended over the next decade, if not much sooner.” In his preface to the paperback edition of King Dollar, Blustein in effect says he hopes Rogoff is right and that he is wrong, because after observing the first year of Trump’s second presidency, he’s concluded that the dollar is too dangerous a weapon for Trump to possess. “Trump has been using economic coercion for purposes that I consider boneheaded and shameful,” Blustein writes, citing, among other actions, his threats to annex Canada. “With the dollar,” Blu­stein continues, “Trump can wield an even more fearsome bludgeon than the tariffs he has imposed. I wish Trump didn’t have that kind of power, but no good will come of pretending that it isn’t so.”

Brendan Greeley, after 20 years at the FT, Bloomberg Businessweek, and The Economist, chucked full-time journalism to pursue a doctorate in economic history at Princeton and write a passion-project narrative history of the dollar. Deeply researched and almost giddily contrarian, The Almighty Dollar treats the dollar not as an instrument of imperial might but rather as an itinerant hunk of metal, piece of paper, or blip on a screen with something resembling free will. In Greeley’s conception, the Fed chair and the president don’t control the dollar; the dollar controls them. His book transports the reader out of the distressing present into distant times and places that echo loudly into the present.

“The biography of the dollar,” Greeley explains, “is not the biography of America.” The dollar was born 506 years ago in what today is the Czech Republic; it was raised to maturity in what today is Spain; then washed ashore in the American colonies. No nation invented it. It was extracted initially from the Ore Mountains dividing Bohemia and Saxony—two kingdoms within the Holy Roman Empire—by a minor Bohemian nobleman named Stephan Schlick. Schlick was, Greeley writes, “an ambitious huckster.” He had no clear claim to the land and lacked permission from the Bohemian crown to mine it. But there was a lot of silver there, so he took it.

Schlick’s purpose was not to create currency. The Holy Roman Empire already had a currency, the silver groschen coin and the gold Rhine florin. Rather, Schlick extracted hunks of silver to ship in ingots to Nuremberg, located outside Bohemia and therefore an illegal destination for Bohemian silver. The ingots were to pay off a debt of 34,000 Rhine florins that Schlick borrowed so he could live beyond his means. Schlick never paid off his loan in full, situating the dollar’s origin story in a familiar mire of insolvency.

To pay for his operations, Schlick had to mint coins—crummy little silver pennies mixed with copper for his peasant employees, and big, prettily milled silver coins to pay dividends to his Saxon investors. The big coin, first created in 1520, was named the joachimsthaler after the Bohemian town where it came from, Joachimsthal (“the Valley of Saint Joachim”). The Saxon investors who received joachimsthaler dividends resided in Leipzig, a key center of finance and trade. That enabled the stateless and abundant joachimsthaler to spread far and wide. Within a decade, joachimsthaler were known familiarly as taler, a nickname later corrupted into dollar. “By the middle of the sixteenth century,” writes Greeley, “merchants in Leipzig, Hamburg, Antwerp, Amsterdam, and even Florence and Genoa had come to expect their silver in taler.” In 1566, the Holy Roman Empire, bowing to reality, adopted it as official currency.

Meanwhile, Spaniards (specifically Castilians) were finding fantastic quantities of silver in Mexico, Peru, and Bolivia. They hired Saxons and Bohemians, by now Europe’s recognized silver experts, to mine it and mill it into a deliberate knockoff of the taler. The result was a real de a ocho (piece of eight), made to look like the taler, that came to be known as the Spanish dólar. Spanish dollars were made in even greater quantities than the joachimsthaler and its various other knockoffs minted throughout Europe. Extracted from the bottomless silver mines of the New World, the dólar eclipsed them all. By 1611, the coin was sufficiently familiar to Elizabethan audiences that William Shakespeare could spin wordplay out of it in The Tempest, with Sebastian speaking of “a dollar” and Gonzalo answering, “Dolour comes to him, indeed; you / have spoken truer than you purposed.”

The Spanish dollar rocketed north to the American colonies because the Crown wouldn’t let its American territories mint or print currency. Urging London’s Council of Trade and Plantations to allow the Massachusetts Bay Colony to build a mint, Increase Mather and William Phips—shortly to become president of Harvard and governor of the colony, respectively—said there was “practically only Spanish money in New England.” When the new nation of the United States established a mint in 1792, Congress decreed that the U.S. dollar would be “of the value of the Spanish milled dollar.”

“Congress did not create an American dollar,” Greeley argues. “It simply consented to the silver dollar that had already been in place well before the American Revolution.” Greeley scoffs at the notion of “fiat currency,” which says that governments create money. In Greeley’s telling, governments race to keep up with and control money’s creation by private opportunists, plunderers, and freelancers who see a need for money someplace and race to fill it. In the modern era, these players are commercial banks. Greeley recognizes the importance of the Federal Reserve, but he believes it’s the banks that manufacture dollars when they make loans. Greeley’s notion that banks create money is really a semantic difference, because the ability of banks to make loans has a lot to do with reserves supplied by the Fed and financed by loans that the Fed makes to the federal government through the purchase of Treasurys. But banks predate the Fed, which has only been around since 1913.

Even after the United States started minting silver dollars, it allowed foreign silver dollars (mostly Spanish and, later, Mexican) to be circulated as legal tender until 1857. The timing was dictated by yet another matter of happenstance outside the government—the 1848 gold strike at Sutter’s Mill. Over the next decade, the California Gold Rush doubled America’s quantity of gold and silver (for which gold could be traded), finally giving the United States enough precious metal to make all of its own dollars.

Human agency is not entirely absent from Greeley’s story. Powerful East Coast bankers preferred a single gold standard to the existing silver-and-gold standard because it was less inflationary, and in 1873 Congress obliged by dropping its legal definition of a dollar as a fixed weight of silver, “severing,” Greeley writes, “the last remaining legal link to the joachimsthaler.” A Free Silver movement arose in the West to restore the silver standard and boost farm prices—inflation be damned. That was what the dollar wanted. But the bankers beat back these pitchfork-wielding Populists and proceeded (in the later words of William Jennings Bryan) to crucify the American farmer on a cross of gold. Restrained in the late nineteenth century from proliferating as fast as American farming was growing, the dollar yielded “a long, slow deflation,” with crop prices falling even as well-fed plutocrats ushered in what was, in more senses than one, a Gilded Age.

Later, after the onset of the Great Depression, President Franklin Roosevelt seized control of the dollar in a more helpful way by extending federal insurance to bank deposits to lure out of hibernation money stashed in coffee cans and under mattresses. Greeley’s discussion of this breakthrough is a bit grudging, because it killed off small-town experiments to revive local commerce by issuing scrip.

Still, the dollar does have an uncanny ability to slip the surly bonds of regulation. The foreign dollar, exiled in 1857, staged a comeback a century later with the postwar advent of eurodollars—not physical dollars but tradable ones, manufactured first in London and then elsewhere. This started as a way for large multinational American banks to get around the Fed when it moved to tighten the money supply to curb inflation. That large American bank could simply borrow money denominated in dollars from a British (or other foreign) bank. In effect, Greeley writes, foreign banks “were just doing exactly what banks in America had already been doing for a century and a half.” They were manufacturing dollars. The eurobond followed, wherein London banks issued dollar-denominated bonds. It was, writes Greeley, “a triumph of practice over theory.”

If we ask, again, why other countries put up with our dollar, Greeley might answer: because it’s their dollar, too. Foreign countries can make and remake dollars for their own purposes. For example, it was the eurodollar that allowed postwar London to reestablish itself as a global capital market center after the pound had lost its status as a reserve currency. If a foreign bank runs into trouble with its eurodollars, the Fed will often step in with an emergency loan or some other intervention to keep a local dollar problem from going global. America’s exorbitant privilege can sometimes be an exorbitant burden.

Greeley’s alternative history can, and probably will, be read as justification for minimal bank regulation in general and for unfettered cryptocurrency in particular. If the dollar has a mind of its own, why can’t bitcoin? But Greeley is no libertarian; he thinks American currency needs to be regulated much more aggressively, because, all the way back to when Stephan Schlick paid his miners in bad pennies, letting the dollar do what it wants usually means that very little money finds its way to those who need it most.

The dollar is very difficult to control, but it is not uncontrollable. The United States demonstrates its governability whenever it weaponizes American currency to bully our friends into sanctioning our enemies. A better way to assert mastery over the dollar would be to allocate credit to better reach ordinary Americans. There are ways to achieve this without letting inflation run wild; the dollar is smart, but we humans are smarter. Sadly, the dollar has seldom been used to the betterment of humankind, not because our government lacked the ingenuity, but for the simpler and more depressing reason that it lacked the desire.