The United States became the world’s largest economy in the 1870’s. But it took another 5 decades for the US dollar to make serious inroads to compete with the pound Sterling as the world’s reserve currency.From World War I through the creation of the Bretton Woods System in 1944, a year before the end of WW II, the pound Sterling and the US Dollar shared a reserve currency duopoly. After Bret ton Woods, the US Dollar emerged as the global reserve currency.
The US dollar has remained the global reserve currency ever since. The launch of the Euro in 1999 drew some market share from the dollar. However, the countries in the European Union continue to depend on the US Military and NATO for their defense. The yen has a small market share of global reserves and trade, but Japan also depends on the US for its national security umbrella. And the pound sterling continues to function modestly as an international currency.
The financial crisis that began in 2008 strengthened the dollars position as global investors sought significant amounts of safe haven securities and liberal monetary policies provided significant monies to fund dollar denominated loans and capital. The subsequent Euro crisis and European bank losses resulting from sovereign debt issued by the Southern European countries flatlined further growth in the Euro share of reserve currency holdings. The dollar remained as one observer described, “dominant and dangerous.”
As the world recovered from the shock of the financial crisis the push in numerous quarters to find ways of reducing dependency on the dollar as the dominant global reserve currency grew. This was led by countries smarting from the sting of US financial sanctions, the aggressive extension of US legal and regulatory authority throughout the global financial and banking systems and competition of the US for offshore haven funds. Several countries, continued to resist joining the central bank and BIS system.
The BRIC nations as well as the ASEAN nations went to work on creating swap capacity between central banks. New lending banks were creating to