The Rise of the US Dollar as World Money

Abstract

This thesis argues that the globalisation of finance is rooted in the post-war processes of monetary transformation that gave rise to the US dollar as world money. It thereby contributes to the field of International Political Economy (IPE) which, to date, understands financial globalisation to be grounded in either the efficiency of financial markets, the interest of dominant states, or new private institutional developments. To give money a central place in the analysis of financial globalisation processes, this thesis develops a heterodox perspective that identifies three essential features of modern moneyness: money of account, the transferability of credit and debt relations, and the constitutive role of the state (especially central banks). During the early Bretton Woods era, the US dollar distinctively emerged as international money of account to settle claims and debts of European states through the operation of the EPU. It was not until the emergence of the Eurodollar market in the 1960s, however, that the US dollar developed its capacity to transfer dollar-denominated credit and debt relations across borders, largely as a result of European central banks placing their US dollar reserves with commercial banks operating in the offshore money market. The breakdown of the Bretton Woods system in 1971 deepened and widened both the role of the US dollar as world money of account and the dynamic transferability of dollar-denominated credit and debt relations, as the end of the link between gold and the dollar led US government debts to be regarded as the most sought-after debt. US government debts were foundational for the rise of the US dollar as world money and the process of financial globalisation. Finally, when managing inflationary pressures through the Volcker Shock, the Federal Reserve began to develop its capacity to deal directly with both the US money market and the Eurodollar market, thereby emerging as a world monetary authority able to manage the recurrent crises of globalising finance. Through the historical processes of monetary transformation, the US dollar was established as world money