The End of Dollar Hegemony

The announcement that the Fed Cuts Interest Rate by Quarter Point is another nail in the coffin of dollar hegemony.

Dollar hegemony, for those of you who aren’t familiar with the term, is the phenomenon whereby the status of the dollar as the world’s premier reserve currency affords the greenback "privileges" that other currencies lack.  The best example is the long-running trade deficit.  Since we owe this deficit in our own currency, the impact on our economy is diminished, because we, in an indirect sense, owe ourselves the debt.

The Fed’s overriding concern for the health of financial institutions and the people that run them over the needs for a stable currency–which has driven the recent interest rate cuts–will further devalue the currency by accelerating the flight of capital into currencies and commodities that afford a better return, be that return in value gain or interest yield.  The more this happens, the more dollar hegemony erodes, and the more "real" our indebtedness–public, corporate and personal–becomes.

The serious question at this point is like the disagreement between Evangelicals and Roman Catholics over salvation: will it be a process or an event?  Up to now it’s been a process.  The world’s economic powerhouses such as China have been diversifying their currency holdings for some time.  This could continue.  Or it could become an event if the wrong set of circumstances come to pass at once. The latter would be apocalyptically cataclysmic.

Too much of Americans’ "gravity-defying" view of life–and that unfortunately includes Christians–has been rooted in dollar hegemony.  How this plays out again depends upon the surrounding circumstances, but the return to earth may be harder than anticipated.  In the early years of the American and Soviet space programmes, when the space capsule returned, it landed on water.  The worst that happened is that one of the capsules went to the bottom.  The Soviets landed in the Kazakh desert; their failures were catastrophic.  Will we have an American or Soviet style landing?

As my wife’s friend from West Virginia says, "Pray, saints…"

8 thoughts on “The End of Dollar Hegemony”

  1. The weakening dollar will have a bad effect on world missions, by the way. It will become more difficult for the US to send out as many missionaries as it does today.

    That is not to say that the weakening dollar is not needed, it is because of our deficit spending and lack of fiscal responsibility.

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