Dollar hegemony
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Dollar hegemony is a term coined by Henry C.K. Liu that describes the special relationship that the US dollar has to the global economy. The US dollar today underpins the world economy; it is the currency in which international transactions are usually carried out. Most importantly the international trade in oil is done in dollars. The European Union's euro could be considered by some to be an attempt to end the dominance of the dollar, and to some extent it has.
History
The world's current international finance architecture is based on the US dollar as the dominant reserve currency. Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat.
World trade under dollar hegemony is a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, central banks all over the world must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically-constructed peculiarity that critical commodities, most notably oil, are denominated in dollars -- dollars are nearly universally accepted because they can buy oil. The recycling of petrodollars is the price the US has exacted from oil-producing countries for US tolerance of the putative oil-exporting cartel since 1973.
Dollar hegemony denies sovereign nations the option of using sovereign credit denominated in their own currencies for domestic development and forces nations to rely on foreign captial denominated in dollars and to export for dollars to repay foreign debts and investment.