The dynamics of capitalism are contradictory with those of nation states, as well as currency unions, and other regionally based economic structures. Capitalism's dynamic is international, and pushes towards growth, profit, and greater productivity regardless of territory. Nation states, and their like, are insular, and have power structures that seek internal preferences against international competition. Nations based on capitalist relations seek to expand their markets, while preserving their internal power structures against competitors.
These contradictions were masked for a generation by the dominance of the U.S. economy. They are now partially masked by the dominance of the U.S. military. The dollar has essentially served as a world currency since the end of World War II and Bretton Woods. It is the overwhelming choice as a reserve currency and placeholder for assets, and serves as a stabilizer of international relations, under an U.S. umbrella, for these reasons. As Luo Ping, of the China Banking Regulatory Commission, recently said, "We hate you guys .. but there is nothing much we can do." Additionally, the U.S. has absorbed much of the world's excess export capacity, even while becoming a debtor nation, on the the strength of its reserve currency status. Without dollar hegemony, a capitalist world in economic retraction would plunge into territorial and trade disputes similar to the European colonial era. Those disputes culminated in World War 1 and World War 2. The same could also be said of a decline in U.S. military dominance, and its promise of an umbrella of deterrence - for states in East Asia, as an example.
With the decline of U.S. economic dominance, there are calls to set up a world currency, or basket of currencies. This idea will ultimately fail, because each nation state, or currency region, has its own agenda regarding trade. For instance, China devalues its currency to maintain export growth. How will that play if it joins a basket of currencies ? This is but one example. Loathing for dollar hegemony is what unites the leadership of many countries. Take that away, and there is no basis for long-term cooperation.
Because of this, and the dominance of the U.S. military, it seems to me that the hollow shell of Bretton Woods will continue to limp along. I suspect this is the reason the U.S. government feels it can buy its own debt, as announced recently. The rest of the world's leadership is still too unorganized, and conflicted, to mount sustained opposition to the dollar's status, or to United States' political leadership in world affairs.
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