HOW DOLLAR BECAME THE GLOBAL CURRENCY

The U.S. dollar's rise as the world's powerhouse currency reshaped global finance and power dynamics.

Europe. These funds, distributed predominantly in dollars, facilitated the reconstruction of war-torn economies and entrenched the dollar's role in international trade.

By the 1950s, the U.S. held nearly 70% of the world's monetary gold. The dollar's supremacy was evident, with most international trade conducted in dollars and central banks holding the currency as a reserve asset.

CHALLENGES TO THE BRETTON WOODS SYSTEM The Triffin Dilemma Despite its initial success, the Bretton Woods system faced inherent contradictions. Economist Robert Triffin warned of the "Triffin Dilemma": the conflict between the U.S.'s domestic economic policies and its role as the issuer of the global reserve currency. To supply liquidity for global trade, the U.S. needed to run persistent balance-of-payments deficits, which eroded confidence in the dollar's value.

By the 1960s, U.S. spending on the Vietnam War and domestic programs led to rising inflation and a growing trade deficit. Nations began to doubt the U.S.'s ability to maintain the dollar's convertibility into gold.

France's criticism and the "exorbitant privilege" France, under President Charles de Gaulle, became one of the most vocal critics of the dollar-dominated system. De Gaulle accused the U.S. of exploiting its "exorbitant privilege" by running deficits and exporting inflation to other nations. In the mid-1960s, France converted large amounts of dollar reserves into gold, further depleting U.S. gold reserves.

Between 1957 and 1971, U.S. gold reserves fell dramatically, from $24 billion to $10 billion. Other nations followed France's lead, increasing pressure on the U.S. to address the system's imbalances.