{"id":1938,"date":"2026-09-10T09:20:14","date_gmt":"2026-09-10T09:20:14","guid":{"rendered":"https:\/\/urbaneconomynews.com\/?p=1938"},"modified":"2026-09-10T09:20:14","modified_gmt":"2026-09-10T09:20:14","slug":"what-happens-if-america-gives-up-the-dollars-dominance","status":"publish","type":"post","link":"https:\/\/urbaneconomynews.com\/?p=1938","title":{"rendered":"What Happens If America Gives Up the Dollar\u2019s Dominance?"},"content":{"rendered":"
\n

The dollar has been the world\u2019s reserve currency since 1944. For most of a century, the dollar\u2019s global dominance has helped the United States stand astride the world as its unquestioned leader. It led to the 20th century being described as the \u201cAmerican century.\u201d This has been good for American consumers and manufacturers and has been a stabilizing presence around the world.<\/p>\n

Read more Mexican Cartel Drone Power Is Growing<\/a><\/p>\n

But the dollar\u2019s share of global reserves has fallen below 57 percent, the lowest since 1995, down from roughly 72 percent in 2001. Central banks have bought over 1,000 tonnes of gold a year for three straight years, quietly diversifying away from dollar dependence. That decline has been gradual and largely unremarked. What\u2019s new is that a sitting vice president is arguing America should let it happen faster.<\/p>\n

In 2023, then-Senator JD Vance told Fed Chair Jerome Powell that reserve currency status amounts to \u201ca massive tax on American producers,\u201d tied to a hollowed-out industrial base. He has since called it a resource curse, comparable to coal in Appalachia, that lets Americans borrow and consume cheaply while quietly undercutting domestic manufacturing. That\u2019s a legitimate economic argument. Global demand to hold dollars really does keep the currency stronger than it would otherwise be, which helps consumers and hurts exporters.<\/p>\n

President Trump has said the opposite, telling his Cabinet in July 2025 that losing the dollar\u2019s status \u201cwould be like losing a war, a major world war,\u201d insisting \u201cwe\u2019re not going to let that happen.\u201d This isn\u2019t a partisan dispute. It\u2019s an unresolved argument between the two people who currently run the American government.<\/p>\n

Stanford economist Arvind Krishnamurthy\u2019s modeling finds that losing reserve status would raise U.S. interest rates by nearly a full percentage point while eliminating the roughly 0.9 percent of GDP that status currently provides. He calls the interest-rate cost \u201corders of magnitude greater\u201d than the trade benefit Vance wants. A separate CEPR model finds a 90-basis-point rate increase, a 9 percent real dollar depreciation, and a wealth loss close to a full year of GDP. Economists interviewed by Marketplace put it plainly: mortgages, auto loans, and credit cards would all get more expensive for everyone, not just the government.<\/p>\n

There\u2019s a national security cost too. Reserve status is what gives U.S. sanctions their teeth, since it\u2019s hard to move money globally without touching a U.S. bank or the dollar itself. Analysts estimate Russia\u2019s GDP fell by more than $100 billion under sanctions, leveraging exactly that centrality. Give up the currency\u2019s centrality, and that leverage weakens with it.<\/p>\n

Read more Morning Greatness: Trump Promises $5,000 Dividend if the GOP Retains the House and Senate<\/a><\/p>\n

During the 1956 Suez Crisis, pressure on the British pound forced Prime Minister Harold Macmillan to cut British defense spending specifically to defend the currency. Economists and historians studying the episode tie it directly to . The pound did not just weaken. Britain\u2019s reach got shorter, for the same underlying reason, at the same time.<\/p>\n

Columbia economist Pierre Yared\u2019s research models indicate exactly this connection as a two-way loop: military strength helps secure reserve currency status, and the cheaper borrowing that status provides funds for military strength in return. The U.S. Navy\u2019s mission of keeping global sea lanes open, backed by hundreds of installations across roughly 100 countries, sits on top of exactly this financial advantage. None of that presence is free.<\/p>\n

Every prior transition\u2014from Spain to the Dutch Republic to Britain to the United States\u2014had an obvious successor waiting. Britain\u2019s decline had America ready to receive the role. Today, China\u2019s renminbi holds roughly 2 percent of global reserves and isn\u2019t freely convertible, since Beijing maintains capital controls to preserve its own policy independence. No other currency matches the dollar\u2019s depth or network effects. That absence of a ready successor cuts two ways: it may give America more room to adjust than Britain had, or it may mean a weakened dollar\u2019s role gets replaced by no single currency at all, a fractured, multipolar arrangement with nobody providing the stabilizing function a single dominant power historically has.<\/p>\n

Britain\u2019s own decline shows the honest shape of this risk. Its living standards kept rising through the 1950s and \u201960s even as its global position eroded underneath. Even the real 1970s currency crisis, culminating in an IMF bailout, ended with real household income roughly 30 percent higher than a decade before. The damage that mattered\u2014deindustrialization, permanently hollowed-out regions\u2014took decades to fully show.<\/p>\n

Every serious model of this transition assumes it will happen gradually, the way Britain\u2019s did, not the way a bank run really happens. That\u2019s the real distinction worth holding onto amid Vance\u2019s argument and Trump\u2019s. The dollar\u2019s decline is already underway, and gradual decline is historically survivable. What turns something survivable into a true crisis is speed. Deliberately accelerating a gradual process is akin to drunk driving: all seems well until you lose control.<\/p>\n

Read more The U.S. Assimilation and Naturalization Process: Problems, Shortfalls, and a Proposed Framework, Part One<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The dollar has been the world\u2019s reserve currency since 1944. 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