The writer is an FT contributing editor and writes the Chartbook newsletter
The dollar is both America’s and the world’s currency. While the US accounts for roughly 15.5 per cent of global GDP (PPP), the dollar is involved in 88 per cent of all international currency transactions. Some 58 per cent of global reserves are held in the US currency.
The economics of this lopsided situation are ambiguous. The dollar’s reserve status supports a US current account deficit that favours US importers and creates markets for the rest of the world, but also skews the US economy away from traded goods. The global spread of the dollar makes the Federal Reserve willy-nilly into the world’s central bank. The dollar’s ubiquity also confers huge power on the American state. US financial sanctions are a commercial death sentence.