ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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US Dollar and the World Economy


The United States (US) no longer dominates the world economy as it did in earlier decades. In 1970, the US accounted for more than 35% of the world’s gross domestic product (GDP), sliding down to 30% in 2020, and in 2021 its share was about 24%. Yet, the dollar remains dominant in world financial markets. Still, when emerging markets and developing economies (EMDCs) borrow, their debt is overwhelmingly denominated in US dollars. The dollar’s financial dominance has enormous significance in the world economy. In their new research published in Brookings Papers on Economic Activity, Maurice Obstfeld and Haonan Zhou have argued that there is a “global dollar cycle.”

The US dollar retained its dominant currency status by occupying the highest shares in global assets and transactions. The dollar’s share in international foreign exchange transactions was 88% in 2019. More than 45% of trade invoicing was made in the dollar. Nearly 60% of cross-border loans were concluded in the dollar in 2019. The dollar’s role as a unit of account for trade invoicing stems from its role as a safe store of value. In the Bretton Woods currency system, the dollar emerged as a single dominant currency in trade invoicing and global banking. The EMDEs endogenously accepted the dollar in the payment flow structure between countries.

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Updated On : 30th Nov, 2022
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