America's Dollar Power Politics: It may be weakening the greenback's dominant role as reserve currency.

• Author: Issing, Otmar

Since the end of the Second World War, the dominance of the dollar has been the clear manifestation of U.S. economic supremacy. In the dispute over the sanctions against Iran, the Trump Administration is now deliberately using the dollar as a (trade) policy weapon. By monitoring dollar transactions, the United States is able to identify companies that are circumventing the Iran embargo. They have to weigh up whether the threat of exclusion from the American market is too high a risk to take. In most cases, this deliberation leads them to succumb to American pressure and terminate contractual obligations they have undertaken with the Iranian economy.

This is where the dollar unleashes all its power and enables the United States to push through objectives that extend far beyond trade policy. Will this process further strengthen the dominance of the dollar? Or will the U.S. government overextend its position and trigger resistance that could damage the dollar in the longer term?

Discontent over the dominant role of the dollar is by no means a new phenomenon. In the West, French governments in particular have repeatedly attempted to organize a united front against the U.S. currency. In the 1960s, French President Charles de Gaulle tried to persuade the German government to join forces with France in converting their dollar reserves into gold, thereby putting pressure on the United States. This was out of the question for Germany on account of the military protection provided by the United States alone. France's dissatisfaction was later expressed in the complaint of Valery Giscard d'Estaing, then Minister of Finance, about the "exorbitant privilege" of the United States to be able to cover its current account deficit in its own currency. After all, there was an idea--not only in France--that the euro could break the dollar's primacy.

Quite aside from whether such a plan could have been realized at all, as is well known, nothing has come of it. The euro clearly occupies second position in the international monetary system, lagging significantly behind the dollar, and the gap has been widening again in recent years. At the end of 2017, for example, the dollar's share of global foreign exchange reserves amounted to (around) 63 percent, while the euro's share was only 20 percent. The yen (5 percent) and the renminbi (1 percent) followed far behind. Other currencies such as the pound sterling play only a marginal role. In fields such as the...