A large part of this success can be attributed to the U.S. dollar’s role as the world’s reserve currency. Countries continue to pay for their goods, commodities, assets, and debt obligations in dollars, requiring central banks across the globe to hold significant quantities of the greenback in their reserves. In the fourth quarter of 2019, $6.7 trillion was
dispersed in the world’s central banks, providing Washington with a unique degree of bargaining power and influence abroad from the decisions that the U.S. Treasury makes domestically.
Preserving this privileged position comes with considerable
advantages that will prove crucial during a great power struggle. The United States can borrow at lower rates than any other country, is always certain that other central banks will buy its bonds, and can direct transactions through American-led institutions. Although China has become more militarily and economically powerful, the yuan was only used in 2.7 percent of international payments in 2021, falling far
behind 40.51 percent for the dollar and 36.65 percent for the euro.
Nonetheless, in the wake of Russia’s invasion of Ukraine, the tide seems to be turning—perhaps not permanently, but in a way that should concern American policymakers. The Sino-Russian alliance is attempting to attract other nations to an alluring alternative, with the ultimate aim of constructing a financial system wholly independent from Washington’s control. With Russia’s help, China is gradually seeking to undermine U.S. financial hegemony.