Review of International Political Economy

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Dollar hegemony: A power analysis

Carla Norrlof

To cite this article: Carla Norrlof (2014) Dollar hegemony: A power analysis, Review of
International Political Economy, 21:5, 1042-1070, DOI: 10.1080/09692290.2014.895773

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Published online: 17 Apr 2014.

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Review of International Political Economy, 2014
Vol. 21, No. 5, 1042–1070, http://dx.doi.org/10.1080/09692290.2014.895773

Dollar hegemony: A power analysis

Carla Norrlof
Department of Political Science, University of Toronto, Canada

ABSTRACT
The dollar has been the world’s first currency since the end of World War II,
possibly since the inter-war period, and is the leading currency today. A
growing chorus of observers believes this dollar-centered order is coming
to an end. While much commentary revolves around changes in the
distribution of power, measures are only loosely related to the material
basis for currency dominance. A proper understanding of the dollar’s
global role requires a quantitative assessment of the United States’
monetary capabilities and currency influence relative to potential rivals.
Moreover, while there is general recognition that a shift in power
capabilities away from the United States is an insufficient, although
necessary, condition for the prevailing currency hierarchy to reverse, there
exists no systematic exploration of how power is exercised when
converting monetary capabilities into currency influence. This paper offers
a systematic assessment of the monetary capabilities and currency
influence of all countries in the world as well as an analysis of how the
three faces of power sustain dollar hegemony.

KEYWORDS
dollar; currency; hegemony; power; monetary power; security; trade;
capital market; United States; great powers.

INTRODUCTION
Since the end of World War II, the US dollar has been the currency most
widely used by governments, financial institutions, corporations and
individuals. Why does dollar hegemony persist? This paper undertakes a
power analysis to explain the sustained importance of the dollar despite
waning confidence in its value and the crescendo of voices claiming
American decline.

Ó 2014 Taylor & Francis

 NO RRLOF: DOLL AR HEGEMONY

Much is at stake in the debate about the future of the dollar. The
dollar’s international role provides the United States with a series of ben-
efits, these are well documented and include prestige, seignorage, bal-
ance of payments flexibility, and policy autonomy, as well as capital and
exchange-rate gains (Rueff, 1972; Cohen, 1977; Strange, 1987; Gourinchas
and Rey, 2005, Cohen, 2006, Lane and Milesi-Ferretti, 2008, Norrlof, 2008,
2010). Looser constraints on its hegemonic power also help generate a
structurally advantageous context with long-term commercial, financial
and political gains (Strange, 1987, 1996; Norrlof, 2010). In addition, the
dollar has symbolic meaning. The greenback is an emblem of American
power coveted by other states. Even though there are important dissen-
sions to the view that the international role of the dollar provides the
United States with an ‘exorbitant privilege’, declinists tend to agree that
dollar hegemony is profitable. In this paper, I assume benefits associated
with dollar hegemony are real.
If the dollar’s international role is lost or seriously threatened, the
American government, as well as its firms and people, must forego an
important source of wealth, convenience and independence. Without
the dollar, declinists believe the American government will have a
harder time borrowing on favorable terms, which will exacerbate
America’s economic and geopolitical descent. For declinists, a substan-
tial reduction in the dollar’s international role is not a mere possibility
but an imminently approaching reality. This bearish outlook is nothing
new — the United States’ capacity to provide the global currency of
choice is regularly put into question. Beginning with the breakdown of
Bretton Woods, and increasingly after the introduction of the euro and
the rise of China, there has been rampant speculation that a multipolar
currency order is in the making (Mundell, 2002; Chinn and Frankel,
2008; Kirshner, 2008; Eichengreen, 2011; Subramanian, 2011a; Layne,
2012). In the 1970s and 1980s, the halcyon days of the dollar were
assumed long gone because of a series of inter-related challenges. Cur-
rent account deficits, oil shocks, budget deficits, the cost of wars, military
spending and inflation were said to conspire against the dollar’s interna-
tional standing. The reappearance of some of these difficulties, more
specifically current account and budget deficits in the context of large-
scale wars and a financial crisis, has reignited suspicions that we are wit-
nessing the last sigh of the dollar era. This wave of dollar pessimism has
had a strong grip on popular imagination because perceived internal
weakness coincides with the gradual diffusion of power to other actors
in the system. Moreover, actors with growing relative capability are
assumed to want to capture the benefits associated with international
currency status. However, if the international role of the dollar endures,
important dimensions of the declinist case for eroding hegemony will be
made irrelevant.

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Numerous explanations for the dollar’s central role in the international

political economy exist but none are based on a comprehensive assess-
ment of power relations in the system. Rather, a distinction is often made
between economic and political factors that sustain international cur-
rency status. Scholars agree that economic factors like economic size
(GDP) as well as the size of commercial and financial markets determine
a given capacity for international currency status (Bergsten, 1975; Cohen,
1977; Chinn and Frankel, 2008). Liquidity, confidence, and transnational
networks are also seen as economic supporting factors (Helleiner, 2008).
Political factors, such as the credibility of domestic institutions and polit-
ico-military power for protecting investments, also play a role (Walter
2006; Norrlof 2010). However, as I will show, the separation of political
and economic factors within the taxonomy developed by Strange (1971)
and further elaborated by Helleiner (2008) is too ambiguous to evaluate
currency status and to forecast shifts in that status. Other explanations
for the dollar’s durability such as incumbency advantage and inertia beg
answers to prior questions. What, for instance, are the options available
to an incumbent not available to other actors (or only available to a lesser
extent)? Why, despite misgivings with the dollar, are governments and
private actors reluctant to shift away from it? The closest economists
have come to explaining incumbency advantage and inertia are network
externalities — the gravitational pull of a currency because everyone else
is using it (Kindleberger, 1967). The significance of network externalities
is increasingly disputed (Eichengreen and Flandreau, 2009). While
accounts relying on them are not necessarily incorrect they are
incomplete.
In this work, I seek to contribute to two debates. First, I add to an ongo-
ing conversation about the future of the dollar by evaluating the extent of
America’s monetary capabilities and currency influence. The solidity of
the foundations of America’s economic hegemony is frequently called
into question, but rarely based on a systematic assessment of the struc-
tural underpinnings of American power. Rather, a mix of different indi-
cators that could be relevant for gauging dollar hegemony and America’s
broader hegemonic position are advanced as a decisive metric. Unfortu-
nately, the most widely quoted statistic for America’s economic decline,
and the declining role of the dollar in the world economy, is GDP – espe-
cially the rate of GDP growth (MacDonald and Parent, 2011; Quah, 2011;
Subramanian, 2011a; Layne, 2012). Based on a complete empirical investi-
gation of national relative monetary capabilities derived from the theoret-
ical literature on international currencies, I show that the United States is
the only state endowed with the capabilities to provide a global currency,
and that this explains the magnitude of the dollar’s use (i.e., currency
influence) relative to all other currencies.

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Second, I speak to theories of monetary and currency power by demon-

strating how monetary capabilities translate into currency influence.
Through a power analysis, I seek to fill a gap in the literature by explain-
ing the persistence of dollar hegemony as a direct result of the United
States’ capacity to exercise different forms of power — bargaining power,
structural power and socializing power — across different actors
(governments and private actors) and across dimensions of currency use
(medium of exchange, unit of account and store of value). As I will show,
even if other great powers were to surpass the United States on key
dimensions, a transition to a multipolar currency order is unlikely to hap-
pen any time soon. A shift in monetary capabilities away from the United
States to another actor is a necessary, but insufficient, condition for the
prevailing currency hierarchy to change. In order for another currency to
replace the dollar as the world’s first currency, other countries must
mobilize power capabilities that would enable them to exercise currency
influence. Although political forces (Strange, 1971; Cohen, 1977; Walter,
2006; Helleiner, 2008; Kirshner, 2008; McNamara, 2008; Norrlof, 2010) are
recognized as important in understanding currency influence, there has
been no systematic attempt in the literature to demonstrate how mone-
tary capabilities are converted into currency influence, or how the United
States exercises power to sustain the dollar as the leading international
currency. This is not to say that there are no important accounts of how
power works to encourage dollar use. Already in the 1970s, Benjamin
Cohen pointed to two facets of American power in monetary affairs: bar-
gaining power and structural power (Cohen, 1977). Moreover, the con-
cept of structural power as applied to the monetary sphere, as well as the
importance of autonomy as an underrated source and expression of
power, is extensively developed in Cohen’s (2006, 2013) later writings.
Susan Strange (1970, 1987, 1996) also elaborated the concept of structural
power and discussed how a country could encourage others to use its
currency depending on the degree of politicization surrounding it, that is
depending on whether it was a ‘master’, ‘negotiated’, ‘top’ or ‘neutral’
currency —(Strange, 1971). But as I will discuss, this approach is prob-
lematic for several reasons, some of which were recognized by Strange.
Analyzing the persistence of dollar hegemony through different
dimensions of power forces us to think more rigorously about which
opportunities and constraints the United States faces when encouraging
dollar use, and to what extent the system, once in place, stabilizes and
reinforces dollar use. It also allows us to do so more thoroughly than the
general appeal to network externalities highlighted by many economists.
By working through how power is exercised to support different dimen-
sions of dollar use, a clearer distinction is possible between how power
operates through different types of actors. While this paper explains the

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long cycle of dollar hegemony, it also clarifies how this cycle might be
broken.

AMERICA’S MATERIAL POWER BASE: THE

FOUNDATION OF THE DOLLAR’S INTERNATIONAL
ROLE
Monetary hegemony is a political and economic system ‘organized
around a single country with acknowledged responsibilities (and privi-
leges) as leader’ in the sphere of money (Cohen, 1977: 9). Dollar hege-
mony describes such an arrangement patterned around the dollar
although this definition is somewhat different from the way it was first
used (cf. Liu, 2002). One way to think about these responsibilities is in
the form of substantive functions that the leader should perform
(Kindleberger, 1973). An alternative approach, and the one pursued here,
is to trace how monetary capabilities produce currency power, both in
terms of influence and autonomy, thus perpetuating currency hegemony.

Monetary capability: The economic dimension

Measuring power is fraught with difficulty and complicated choices
about how to operationalize concepts, select, and weight indicators. With
these challenges in mind, the discussion and figures below give us
approximations of the distribution of monetary capabilities and currency
influence in the world.
By monetary capability, I mean the underlying resource base required
for exercising currency influence. The primary purpose of an interna-
tional currency is to facilitate trade in goods and assets through a com-
mon medium of exchange. Because demand for the currency of the
country with the largest share of the world’s output, tradable goods and
assets will be higher than the demand for other currencies, the country
with the largest share of the world’s GDP, trade and capital markets
should issue the global currency (Cohen, 1971; Bergsten, 1975;
McKinnon, 1979; Krugman, 1980; Chrystal, 1984; Portes and Rey, 1998).
Although several international currencies (major currencies) can co-exist,
and several of them co-exist today, there has been a tendency for one of
the currency majors to predominate. Consistent with the theoretical liter-
ature on international currencies, I have constructed a composite mea-
sure of monetary capability based on equally weighted shares of GDP,
trade and capital markets. My indicator of commercial size is uncontro-
versial and includes both exports and imports. My measure of capital
market size includes stock market capitalization and bond issuance. I
have excluded bank assets because reliable estimates do not exist, and

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because of the exaggerated importance it gives to over-leveraged econo-

mies. In most cases, focusing on capital market size captures the degree
of financial openness since capital market size and openness are posi-
tively correlated (Chinn and Ito, 2006). However, this approach is not
entirely satisfactory for very large countries like China, which can have
big capital markets while pursuing relatively closed policies. Using Ito
and Chinn’s (2013) ranking of countries based on capital account open-
ness, I show the extent of financial openness relative to the United States
and other countries included in the Chinn-Ito dataset.

Monetary capability: The political dimension

A strong military and naval power can be used to collect debt from far-
away places and is an important political source of global currency status
(Bergsten, 1975; Cohen, 1977; Mundell, 1998; McNamara 2008). Histori-
cally, coercion has been employed in order to sanction countries that
used the currency without accepting the consequences of borrowing —
i.e., countries that would not honor debt. With that said, although inter-
nationally prominent currencies have generally been backed by strong
military powers, the mechanism converting military capability into cur-
rency influence now works differently (Helleiner, 2008; McNamara, 2008;
Norrlof, 2010). Defense spending is the proxy used for military capability
and has a number of drawbacks. Most importantly, it overstates the mili-
tary capability of countries fighting wars. For example, the United States’
defense spending in 2010 was unusually high because of the cost of
American involvement in Iraq and Afghanistan — this spending does
not translate into actual, but expended, capability. To produce a conserva-
tive rank for the US, I subtract the cost of overseas contingency operations
from American military spending when calculating US military capabil-
ity. Since my main interest is to evaluate America’s position relative to
other countries, this method gives a cautious appraisal of the gap
between the United States and its rivals (some of which have also been
embroiled in wars). Despite these limitations, defense spending is a more
appropriate measure than the leading index, the Composite Index of
National Capabilities (CINC) compiled by the Correlates of War (COW)
project, for several reasons. First, the CINC includes economic variables.
Second, the CINC gives too much importance to boots on the ground for
offensive and defensive actions.
Other political variables that impinge on global currency status are
harder to quantify and are only relevant if other criteria such as economic
size or military strength are met. For example, while sound and flexible
domestic institutions enhance confidence in monetary policy (Walter,
2006), their effect is difficult to measure and compare across countries.

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Similarly, domestic lobbying efforts directed at persuading a country to

become the currency hegemon (Helleiner, 2008) are only effective if that
country has the economic and political weight to perform global currency
tasks.
In sum, indicators for monetary capability are: a country’s GDP output;
trade; capital market (including financial openness) and defense
expenditures.

Currency influence
Currency influence is a term I use to characterize the extent to which
a specific currency is used internationally. Even when greater use of
the dollar is due to weak economic fundamentals it is still a sign of the
dollar’s influence relative to other currencies. For example, when the
dollar has fallen precipitously, allied governments have stepped in to
save the currency, resulting in increased dollar use as measured by the
intervention and reserve function. Under these circumstances, greater
use of the dollar reflects a choice to use the currency with the greatest
market impact. Though currency influence is generally beneficial it also
has disadvantages. For example, the more a currency is used as store of
value, the greater the potential for a run on the currency and/or on
banks. More broadly speaking, the greater a currency’s influence, the
more vulnerable it is to sudden withdrawal, which generalize more
quickly the larger the scale of use.
My indicator weighs official reserves and private foreign exchange
transactions equally. This indicator of currency influence cuts across the
three roles (medium of exchange, unit of account, and store of value) that
a global currency must play in international markets for states and non-
state actors (Cohen, 1971, Krugman, 1991). If actors seek to use a specific
currency as a store of value or as a medium of exchange, they will first
have to acquire that particular currency in the foreign exchange market.
Also, if private actors obtain a currency for settlement purposes, they
almost always do so because the good or asset is denominated in that cur-
rency. When governments accumulate reserves, they do so to store value,
because of the convenience of intervening in that currency and to track
some aspect of the issuing country’s economy. In short, this indicator
spans all currency functions perhaps not perfectly, but it is the best indica-
tor of currency influence one can construct from the available data.
Together, currency influence and currency autonomy give the issuing state
currency power. While I discuss currency autonomy in parts of this paper,
I do not seek to measure the concept quantitatively.
A monetary hegemon must have both monetary capability and currency
influence. A mismatch between monetary capability and currency

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Figure 1 The world’s share of monetary capabilities relative to the United States,
2010. Note: Rank order of financial openness in brackets using Ito and Chinn
(2013).

influence is a sign that a country is transitioning to or from a position of

monetary hegemony. A country that has greater monetary capability than
any other actor, but limited currency influence, is central to commercial
and financial markets but not to the system of foreign exchange. Such an
actor is either a declining hegemon that can no longer effectively convert
monetary capabilities into currency influence or an aspiring hegemon
unable to do the same as effectively as the incumbent power. Conversely,
a country with significant currency influence but second-rate monetary
capability is central to the international currency system but not commer-
cial and financial markets. Such an actor is either a declining hegemon
with a sustained capacity to convert monetary capabilities into currency
influence or an aspiring hegemon capable of transforming capabilities into
currency influence more effectively than the incumbent power.

The distribution of monetary capabilities and currency influence

I use uniform graphics to represent the international distribution of mone-
tary capabilities as well as the relative size of all government debt to GDP.
The figures arrange countries according to their power status in a vertical

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Figure 2 The world’s share of military capabilities relative to the United States,
2010.

band along the x-axis while the variable under consideration (monetary,
military, government debt and currency influence) is measured along the
y-axis. All countries are assigned a status of Incumbent Power (I), Great
Power (GP), Middle Power (MidP), Small Power (SP), Minor Power
(MinP). For each measure, the graphs show the four leading countries
with over-sized dots according to power status. The size of the dots are
bigger for great powers than for middle powers, which in turn are bigger
than for small powers and so on. The incumbent is the single largest coun-
try in the system. Great powers are assumed to command at least 33:3 per-
cent of the incumbent’s power variables. Each subsequent rank drops by a
third. The intervals are as follows: PI > PGP > PI/31, PI/31 > PMidP > PI/32,
PI/32 > PSP > PI/33, PI/33 > PMinP  0. Thus, great powers command more
than 33:3 percent of the incumbent’s capabilities (PI), middle powers
(PMidP) more than 11 percent and up to 33:3 percent, small powers (PSP)
between 3.7 percent and 11 percent and minor powers (PMinP) up to 3.7
percent.
In this graph, power status is based on monetary capability. I opera-
tionalize monetary capability using an equally weighted composite indi-
cator of all countries’ share of American GDP, trade (exports and
imports) and capital markets (stock market capitalization and bond issu-
ance). Employing Ito and Chinn’s (2013) ranking of countries based on

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capital account openness, I indicate to what extent countries with signifi-

cant monetary capabilities are open. In line with Ito and Chinn (2013),
countries with the most open financial markets are tied in first place; this
stood at 54 countries in 2010; countries receiving the second highest value
rank 55 and so on. According to this measure, the United States and
Japan are ranked number 1, the euro-zone 21 (weighed down by Slovenia
and Slovakia) and China 110.1 However, China is taking important steps
towards greater openness through initiatives like the Shanghai free trade
zone, liberalization of cross-border capital flows and acceptance of freer
trade of the RMB within the zone. Moreover, London — the largest venue
for currency trade in the world — has become a hub for offshore RMB
trades.
Actors falling above the thick blue line possess more than 50 percent of
America’s monetary capabilities. As is clear, the euro-zone is a potent
rival with 80 percent of America’s monetary capabilities. China has
approximately half of America’s monetary capability, Japan 39 percent.
Apart from these three entities, one of which is a political coalition, there
is no country, which has more than a quarter of America’s monetary
capability. Twenty-six actors have 5 percent or more of America’s mone-
tary capability (blue dotted line).
Military capability is used to assign power status in Figure 2. As before,
countries above the thick blue line have more than 50 percent of America’s
military capability. Based on the working assumption that an actor must
command more than a third of the incumbent’s military capability in
order to qualify as a great power, there are no great powers besides the
United States in the security sphere. Both China and the euro-zone are
middle powers. China has just slightly more than 20 percent of America’s
military capability and the euro-zone 19 percent. Lagging further behind,
Russia, the United Kingdom and Japan each have between 9 and 10 per-
cent of America’s military capability. Only ten actors have more than 5
percent of America’s military capability (blue dotted line). Higher relative
spending has resulted in an unrivalled military position. Only the United
States ‘enjoys command of the commons — command of the sea, space,
and air’ (Posen, 2003). Since the fall of the Soviet Union, no single power,
or coalition of powers, has been in a position to balance the United States
(Brooks and Wohlforth, 2008).
Because of the solvency threat it represents, budgetary pressure is
often seen as an ominous sign of dollar decline and the decline of the
United States (MacDonald and Parent, 2011, Layne, 2012). Before the
‘spreadsheet error’ discovered in Reinhart and Rogoff (2009), their work
raised fears that government debt to GDP ratios over 90 percent inhibit
growth and helped fuel dollar skepticism. However, these fiscal chal-
lenges would only threaten dollar hegemony if the United States did not
issue a sovereign currency and its economy was not so flexible and

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Figure 3 The world’s government debt to GDP, 2010.

adaptable. Because of the widespread perception that government

spending is jeopardizing America’s economic position, Figure 3 ranks all
countries’ share of government debt to GDP according to power status
based on monetary capability. This figure inverts the y-axis, placing
lower debt countries higher in the graph than high debt countries. Coun-
tries with government debt greater than the size of their economy appear
above the thin dotted line in blue.
Japan is the only great power with government debt greater than the
size of its economy, indeed well over twice the size of its economy at 215
percent of GDP. The United States is a distant second with government
debt at just one percentage point below 100 percent of GDP. High levels
of government debt can shake confidence in a currency. Sagging demand
for official debt may cause foreigners to anticipate higher interest rates,
currency depreciation, or both. But the mechanism invoked whereby the
United States faces a potential solvency threat is archaic and ceased being
operative with the breakdown of the Bretton Woods system of fixed
exchange rates. The United States runs no risk of becoming insolvent as a
result of growing sovereign debt because the United States does not
pledge to convert its currency into any other currency, gold or metal at a
fixed rate and can therefore issue debt without worrying about running
out of money (Wray, 1998). In order to persuade investors to hold debt,
the United States, or any other country with a flexible exchange rate, may

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Figure 4 The world’s share of currency influence relative to the United States,
2010.

face excess interest rates but solvency is not the issue. By contrast, high
levels of sovereign debt within the euro-zone are serious since euro-zone
countries have given up their monetary sovereignty. China’s sovereign
debt is just 34 percent of GDP but this figure is unreliable and likely
understates the actual amount of debt, which analysts estimate to be any-
where between 30 and 80 percent of GDP.
Figure 4 ranks countries along the x-axis according to monetary capa-
bility and measures currency influence relative to the United States on
the y-axis. The dollar is by far the most widely used currency in the
world, by both private actors in foreign exchange markets and by states
as official reserves. The euro is the second most frequently used currency
but has less than half the reach of the dollar. Japan has very little currency
influence — 14 percent relative to the United States. The use of China’s
currency, the renminbi (RMB), in foreign exchange markets is negligible,
and the renminbi is not a reserve currency. Since the currencies of several
middle powers, and even small powers, have a more prominent role
than the renminbi, the relationship between currency influence and
power rank breaks down. This imperfect correspondence between cur-
rency influence and power rank is not only true for China but for other
middle, small and minor powers. For example, both Australia and Swit-
zerland are small powers in terms of monetary capability but both the
Australian dollar and the Swiss franc have assumed an international role

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ahead of middle powers such as Canada or the Netherlands. From the

figure it is also clear that only a handful of currencies (more precisely
seven) have more than 5 percent (see the dotted blue line) of America’s
currency influence whereas more than 20 countries have at least 5 percent
of America’s monetary capability (see Figure 1). As I will show, whether
monetary capability translates into currency influence depends on how
power is mobilized.
The preceding empirical analysis confirms the United States’ standing
as the monetary hegemon of our time, with vastly greater currency influ-
ence than any other actor in the world. The United States is peerless in
terms of monetary capability, military power and currency influence.
Yet, America is generally understood to be in decline, with dire conse-
quences for dollar hegemony and geopolitics (Layne, 1993, Kang, 2007,
Calleo, 2009, Layne, 2009, 2010, Rachman, 2011, Subramanian, 2011b).
The clash between the different characterizations of America’s standing
does not mean that the data presented by declinists are incorrect. Rather,
the statistics they use to gauge America’s monetary power are flawed by
omission. By comparing and misinterpreting the significance of select sta-
tistics (such as external and internal deficits and debt) and by using dif-
ferential (GDP) growth as a stand-alone measure of future primacy, they
misdiagnose the current state of America’s monetary power. Conse-
quently, decline is rarely measured in ways that reflect the United States’
continued capacity to supply the world’s primary currency.
Although declinists do not attempt to estimate America’s monetary
capability or currency influence in any comprehensive way, they are
right that the gap in monetary power between America and other Great
Powers is contracting. America’s relative weakening ‘is real’ but no coun-
try or coalition of countries comes anywhere close to the United States in
terms of monetary power, namely, in terms of both monetary capability
and currency influence. Why is America’s declining monetary capability
not eroding dollar influence at a quicker pace? As demonstrated, mone-
tary capability does not perfectly map onto currency influence, begging
questions of how state and private actors are motivated to use a currency
and what the United States can do to promote the use of dollars in the
international political economy. In the next section, I examine how the
distribution of monetary capability translates into currency influence and
how it prolongs dollar hegemony.

POWER ANALYSIS AND THE DOLLAR

Despite the voluminous literature on the future of the dollar, Benjamin
Cohen (2013) notes, ‘. . . we really know very little about the specific
causal pathways that run from cross-border use of a money to the capa-
bilities of its home government’. In Currency and State Power (2013), he

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asks how the various international roles of a currency impact the power
of the state as well as the distribution of power among states. He demon-
strates that the country providing the global currency gains an important,
but neglected, form of power — autonomy. In a recent contribution,
Cohen and Chiu (2013) examine the relationship between different forms
of power in light of developments in East Asia. Building on Cohen (1971,
1977, 2013), I seek to offer the first systematic explanation of how differ-
ent dimensions of power support the dollar’s global role across the three
functions it assumes for official and private actors.
This approach has a number of advantages over other major explanations
for the dollar’s staying power, such as those that invoke Susan Strange’s
(1971) taxonomy of ‘master’, ‘negotiated’, ‘top’ and ‘neutral’ currencies
(Helleiner, 2008; Kirshner, 2008; Otero-Iglesias and Steinberg 2013). As
Strange (1971: 12–13) explained:

 A country providing a ‘master’ currency coercively imposes its cur-

rency within a single country, a set of countries, or internationally.
 A country providing a ‘negotiated’ currency offers positive incentives,
such as aid or military protection in order to encourage other countries
to use their currency.
 A country providing a ‘top’ currency experiences spontaneous use of
its currency by private and official actors for economic reasons.
 A country providing a ‘neutral’ currency is not politically supported
although it must meet certain political conditions.

Based on this taxonomy, political factors are understood to be more

prevalent when a currency is ‘master’ or ‘negotiated’ than when it is ‘top’
or ‘neutral’ (Helleiner, 2008). The framework is helpful insofar as it offers
a simply organized catalogue of various economic and political factors
that sustain or derail an international currency — still, it suffers from
important drawbacks.
As Strange (1971) and scholars adopting this classification (e.g.,
Helleiner, 2008) recognize, these categories are not mutually exclusive.
As a result, whether a currency belongs in one category or another, or in
multiple categories, is difficult to assess. For example, the same empirical
observations are relevant for the direct channels through which politics
affect the economic determinants of ‘top’ currency status and the indirect
channels through which politics affects ‘negotiated’ currency status,
making it difficult to ascertain when a currency is ‘top’ and when it is
‘negotiated’. The fact that ‘the issuing state can use its power to extend
trade and financial networks by opening foreign markets for its firms. . .’
(Helleiner, 2008: 362) is said to be a political factor affecting ‘top’ cur-
rency status. Similarly, ‘. . .foreign support for the dollar [stemming]
from an implicit understanding that this would preserve US goodwill

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and access to the US market’ (Helleiner, 2008: 367) is considered a politi-

cal factor affecting ‘negotiated’ status. Since key economic factors sup-
porting a currency are said to be liquidity, confidence, and transnational
networks, it therefore does not follow that ‘negotiated’ status ‘refer[s] to
any context where a currency’s international role is supported by foreign
governments for reasons that do not stem from the currency’s inherent
economic attractiveness’ (Helleiner, 2008: 363). The concept of network
extensiveness is understood to include measures of market size and net-
work externalities. Yet, since network externalities are used to explain
the international use of a currency beyond what one might expect by sim-
ply looking at economic variables, the extent to which a currency is used
for underlying economic reasons (i.e., the currency has ‘top’ status) and
to what extent actors are politically motivated to use the currency (i.e.,
the currency has ‘negotiated’ status) is not easily discernible.
What is political and what is economic within this framework remains
unclear. While confidence, liquidity and network extensiveness are sin-
gled out by Helleiner (2008) as economic variables determining currency
influence, they are not actually economic determinants but rather con-
cepts used by economists to study the phenomenon. These three varia-
bles certainly matter for currency influence. But what is economic and
what is political is empirically intractable. Superimposing an additional
set of determinants (market-based, instrumental or geopolitical) to explain
international currency standing (cf. Helleiner and Kirshner, 2009: 23)
compounds the problem. Because of the unclear distinction between the
four categories, this taxonomy cannot be used to show how transitions
between various categories occur. This limitation makes the classification
scheme theoretically questionable and empirically impractical.
In her later work, Susan Strange (1987, 1988, 1996) explained the persis-
tence of American hegemony, including the role of the dollar, as the
result of four pillars of power: production, finance, security and knowl-
edge. Due to structural power in these domains, Strange argued that the
United States can define the rules of the game. Keohane (2000) and
Verdun (2000) see this view as tautological (more below). Strange (1988:
26) refers to ‘four interacting structures’, but there is very little on how
these issue-areas intersect, closing off interesting possibilities that could
have made her account more complete and convincing. Recently, schol-
ars have become very interested in these connections. For example, Norr-
lof (2008, 2010) shows that the combined effect of America’s trade and
financial markets as well as its unrivalled military power is key to under-
standing the stability of the American-centered order and the preeminent
role of the dollar in the international political economy. There are three
main components to this argument. In short, American commercial capa-
bilities generate favorable investment relationships; financial capabilities
result in beneficial commercial dynamics; and military preponderance

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creates advantageous commercial and financial transactions. America’s

Global Advantage (2010) is not the first account of bargaining dynamics
within each of these domains but it is the first complete explanation of
how synergies combine across all these spheres to sustain American
power. This framework and the evidence supporting it has gained a great
deal of traction and has been used by scholars to speculate about the
dollar’s future (Stokes, 2013), China-US rivalry (Beckley, 2012) and the
wisdom of retrenchment (Brooks et al., 2013). While this research pro-
gram offers insight into how economic and political capabilities, as well
as economic and political bargains, underpin the dollar’s global role
(including American hegemony more generally), it does not offer a sys-
tematic analysis of how the United States exercises power.
A more promising approach is to return to Cohen’s (1971) typology
describing the various roles an international currency must play and to
identify what kind of power is activated when private and official actors
are motivated to use dollars as medium of exchange, unit of account and
store of value. By analyzing all the dimensions of power through the full
set of international currency functions while looking at both official and
private actors, we can gain a better understanding of what power mecha-
nisms uphold dollar hegemony.

THE PERSISTENCE OF DOLLAR HEGEMONY THROUGH

DIFFERENT DIMENSIONS OF POWER
The persistence of dollar hegemony is due to America’s overwhelming
monetary capability and its ability to mobilize capabilities through differ-
ent forms of power. Drawing on David Baldwin’s (1980) important insight
about the ‘relative-infungibility’ of power resources, I show how the
United States uses its multi-dimensional resource base to influence others
in specific contexts. In analyzing the dollar’s perseverance in light of dif-
ferent expressions of power, I use Dahl’s (1957), Bachrach and Baratz’s
(1962) and Lukes’ (1974) definitions of the first, second and third faces of
power. Hard power through coercive means, some form of payment (mone-
tary or quid pro quo) or soft power (the power of example or attraction) is
applied when exercising these various forms of power (Nye, 2011). Nye’s
concept of soft power (1990, 2002) is challenged by Barnett and Duvall on
the grounds that ‘the capacities of actors to determine the conditions of
their existence’ (2005: 42) is not at stake when actors voluntarily change
preferences and behavior through persuasion. Barnett and Duvall’s (2005)
justification for excluding persuasion as a form of power is unconvincing
and leaves out a wide range of instances in which power is exercised. One
of their reasons for excluding persuasion is that ‘most scholars interested
in power are concerned not simply with how effects are produced, but
rather with how these effects work to the advantage of some and the

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disadvantage of others’ (Barnett and Duvall, 2005: 42). As Baldwin (2013)

notes, unintended effects need not be negative, so Barnett and Duvall’s
(2005) unwillingness to recognize persuasion as a form of power on the
grounds that a persuaded party is not disadvantaged is questionable.
Moreover, Barnett and Duvall’s (2005: 42–3, 53, 63) complaint that persua-
sion involves a voluntary change in preference conflicts with their defini-
tion of structural and productive power since they see these two forms of
power as including a consensual element. They say the United States ‘has
worked hard to generate consent — that is, to get those who are structur-
ally disadvantaged because of their position in the world political econ-
omy to accept the order of things’ (Barnett and Duvall, 2005: 65). In this
case, some form of persuasion is implied.

The first face of power

Bargaining power, or relational power is the ability to change the affected
party’s perceived costs and benefits of the available options through
force, payment or persuasion. These ‘influence attempts [are] based on
positive sanctions . . . and negative sanctions’ (Baldwin, 1978: 1231).

Medium of exchange
The United States can only encourage private actors to use the dollar as a
medium of exchange by applying the first face of power to other currency
functions. For example, promoting the use of dollars as a unit of account
implicitly raises the use of dollars as medium of exchange since the
invoicing currency is usually the settlement currency. There is no obvi-
ous direct way the United States can promote the official use of dollars as
a medium of exchange through the first face of power either. The United
States has nothing to win with central banks using a currency other than
the one that will have greatest market impact. Instead, maximum effect is
achieved by using the currency that is most frequently and widely traded
in foreign-exchange markets for vehicle purposes.

Unit of account
By threatening, rewarding or persuading countries to choose a strategy
other than their preferred one, the American government can preserve or
raise private use of dollars as a unit of account. For example, as the single
most coveted export destination in the world, the United States can
threaten market closure, or promise increased openness, to incite others to
open their markets or allow American firms to invest or open subsidiar-
ies abroad. Growth in American exports or production of US

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multinational corporations (MNCs) will intensify the use of dollars for

invoicing purposes, that is a as unit of account for private actors. Most
American exports, as well as goods produced by US foreign subsidiaries,
are differentiated. Early theories suggested that the lower price sensitiv-
ity of such goods gave exporters incentives to reduce demand uncer-
tainty (and thus sales fluctuations) by invoicing in the home currency
(McKinnon, 1979). More recent research also suggests invoicing will
occur in the exporter’s home currency, but for different reasons. Citing
Magee and Rao’s (1980) finding, Wyplosz (1997: 7-8) argues that invoic-
ing a lower price in the exporter’s home currency or a higher price in for-
eign currency amounts to the same thing and concludes that
explanations based on minimizing transaction costs (Niehans, 1969,
Krugman, 1980, Chrystal, 1984) are more convincing than ones based on
invoicing in the exporter’s currency. An expansion of American buying
power in homogenous goods will also tend to increase the dollar’s unit
of account function. In this case, exporters have incentives to price in
local currency (i.e., dollars) to avoid a drop in sales when the local cur-
rency depreciates vis- a-vis the home currency (McKinnon, 1979). Given,
greater differentiation in American exports and MNC production than in
American imports, we should expect that the net effect of American com-
mercial expansion and import penetration is to raise the unit of account
function for dollars.
The invoicing, and settlement, of certain commodities such as oil in
dollars — the so-called ‘petro-dollar’ market — is the immediate result of
bargaining and, as such, a palpable instance of the directed, intentional
influence attempts envisaged by David Baldwin (1980). After the collapse
of the Bretton Woods system of fixed exchange rates in 1971, the United
States insisted that Saudi Arabia and other Gulf states price oil in dollars
and not accept any other currency in exchange (Spiro, 1999). The bargain
was not purely coercive; there was a quid pro quo in the form of assured
US military presence. This exchange of dollar support for security bene-
fits is reminiscent of the offset agreement under the Bretton Woods fixed
exchange rate regime whereby Germany agreed to prop up the dollar
price of gold in order to secure US troops in Germany (Zimmermann,
2002).
The United States could put pressure on other governments to adopt the
dollar as the official unit of account by providing incentives to track the
dollar. One way to achieve this would be to encourage ‘dollarization’—
the wholesale adoption of the dollar as medium of exchange, unit of
account and store of value — within a local economy so that the dollar
would effectively become the official unit of account.2 In other cases, the
United States has applied pressure to convince governments to adopt an
alternative unit of account — for example loosening the renminbi’s quasi-

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fixed exchange rate regime against the dollar by branding China a

‘currency manipulator’ and threatening trade retaliation.

Store of value
The American government has very little bargaining power over which
currency is used by private investors to store value. Although the Ameri-
can government has the authority to freeze dollar accounts when the
United States has jurisdiction over them such actions actually curtail
rather than promote dollar use. Besides the immediate effect of reducing
dollar use, arbitrarily freezing private dollar accounts has the long-term
effect of discouraging dollar savings in the United States. By contrast,
with the increased complexity of financial instruments and the intensifi-
cation of cross-border capital flows it is difficult to see how the American
government could deny investors residing in the United States (much
less foreign investors) the ability to save in non-dollar assets. Contrary to
tax evasion probes, where the United State is increasingly vigilant it is
much more complicated to interfere with private decisions about which
currency to use for investment purposes.
Although there may have been occasions where US officials have
cajoled financial institutions or corporations into holding dollar assets,
such influence attempts are the exception rather than the rule and cannot
explain why dollars are held privately worldwide. However, the United
States can exercise this kind of power over official actors. For example,
when encouraging Gulf states to invest oil proceeds in dollar-denomi-
nated assets while dissuading them from diversifying into other currency
denominations (Spiro, 1999). As with private assets, the United States can
freeze official dollar accounts in the United States as it has done on a
number of occasions. Mostly recently Nigerian accounts in the United
States were suspended. However, such actions prompt diversification
into competing currencies, thus limiting rather than expanding dollar
use. The United States has also strong-armed countries to support the
dollar’s role as a store of value through large-scale dollar purchases.

The second face of power

The concept of structural power was first applied to monetary affairs by
Benjamin Cohen who argued that ‘process power is the ability to gain
under the prevailing rules of the game, while structural power is the abil-
ity to gain by re-writing the rules of the game’ (Cohen, 1977: 56). This defi-
nition of structural power is clearly an expression of the second face of
power, and is very close to the more widely-quoted conception offered by
Susan Strange, ‘. . . structural power decides outcomes (both positive and
negative) much more than relational power does . . .’ (1987: 553), and

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‘[s]tructural power is the power to choose and to shape the structures of

the global political economy . . .’ (1987: 565). This view of structural power
has been criticized for its circular reasoning (Keohane, 2000). A revised
definition of structural power as the creation, revocation or re-formulation
of rules in ways that alter the strategies available to other actors while
expanding one’s own range of strategies addresses this methodological
problem. This is consistent with a more general definition which sees stra-
tegic framing and agenda-setting by removing, re-ordering or expanding
the set of options from which actors must choose as a form of structural
power (Bachrach and Baratz, 1962). It is worth emphasizing that the above
definition suggests that if one party increases its scope of maneuver rela-
tive to another without altering the other’s options it would still have
raised its power relative to them.3 According to this definition, structural
power is the ability to shape the structure of interaction through rules that
modify the options of governments and private actors.
One form of structural power spanning all currency functions and
actors is the adoption of rules to create an open market for goods and
capital. A liberal economic regime fundamentally alters the preferences
of both private and official actors to use the currency across all the roles a
currency can play. This has important consequences. No matter how
much China grows relative to the United States, the renminbi cannot out-
perform the dollar in terms of currency influence nor can China enjoy
currency autonomy unless some degree of capital account and currency
convertibility is achieved.

Medium of exchange
The American government encourages private use of dollars as a
medium of exchange by creating attractive options for recycling them. By
encouraging other countries to make dollars acceptable, firms are able to
spend dollars locally, raising incentives to receive dollars in exchange for
merchandise goods. The United States does not have to go all the way to
formal dollarization; all it has to do is hype the strength and stability of
the dollar and persuade governments to make dollars acceptable as par-
allel means of payment. For example, even when local currencies have
not been rapidly inflating, dollars have generally been accepted as ‘hard’
currency in developing countries.
The dollar’s appeal as medium of exchange is more generally deter-
mined by its liquidity — a function of the breadth and depth of American
capital markets. By introducing legislation, including lax regulations, the
American government has promoted the growth and development of
financial markets in the United States.
As with the first face of power, there is no incentive for the United
States to promote official use of dollars as medium of exchange by

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applying the second face of power; it is in everyone’s interest to use the

currency with the greatest market impact (see above).

Unit of account
Endorsing the expansion of financial markets can also raise the dollar’s
unit of account function for private investors. Foreign firms are more
willing to accept dollar invoicing and settlement if they can recycle the
currency in future transactions. If they cannot use the currency to settle
other trade contracts, invest, or otherwise spend money, they will have
to switch in and out of the currency. This process is potentially very
costly. As discussed in the previous section, leaning on governments to
accept dollars domestically makes dollar invoicing more attractive
because it allows foreign firms to spend dollar earnings locally. More
broadly, extending commercial links with other countries raises incen-
tives to invoice in dollars. One example of how the United States has
maintained and increased its commercial reach through strategic
sequencing (cf. Lax and Sebenius, 1991) is the ‘single-undertaking’
approach, which was introduced at the close of the Uruguay Round. In
order to persuade countries to accept the Final Act establishing the WTO
(World Trade Organization), the United States took GATT (General
Agreements on Tariff and Trade) off the table by retiring from it, leaving
those with membership aspirations little choice but to accept the more
controversial aspects of the WTO such as intellectual property rights
(Steinberg, 2002: 357–60). The American government knew that without
the participation of the United States and the European Union, GATT
membership was unattractive and ‘. . .succeed[ed] in removing this status
quo from the choice sets of the loser’ (Gruber, 2001).
American campaigns promoting dollarization — including statements
extolling the dollar or disparaging other currency majors — is an applica-
tion of the second face of power. President Reagan’s quip —’a strong dol-
lar for a strong America’ and former Secretary of the Treasury John
Snow’s mantra —’it’s always the same policy; our policy is the strong
dollar’— are good examples. This strategy promotes the dollar by vitiat-
ing the relative attractiveness of viable substitutes as exchange rate tar-
gets. Of course, other governments also have the option of launching
campaigns in support of their own currency and/or to reverse dollariza-
tion. As Juliet Johnson (2008: 381) has demonstrated, ‘Russia’s official
anti-dollar campaign kicked off in April 2006 . . . and . . . introduced legis-
lation [to] . . . ban the use of dollars in public speeches and in domestic
pricing. Newspaper stories and public events decrying the dollar and
promoting the ruble followed.’

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Store of value
Whereas the American government cannot affect the currency composi-
tion of private investors’ portfolios through direct influence attempts it
has some leverage over where private investors eventually store value
through the second face of power. As mentioned earlier, by making and
revoking rules and regulations, the American government can create a
permissive environment within which financial institutions are empow-
ered to increase the range and sophistication of investment vehicles from
which investors can choose. By shaping the options available to private
actors, the United States exerts influence over how non-state actors inter-
act with each other and how they interact with other states, as Susan
Strange (2002: 112–13) imagined (cf. Helleiner, 2006).
One way to increase official dollar reserves is to create new opportuni-
ties to invest in dollar denominated assets. For example, the Treasury
department made it possible for Gulf states to diversify into government
bonds without going through regular auctions (Spiro, 1999). This made it
easier (as compared to competitive and non-competitive auctions) to
adjust the size of the order and negotiate rates and yields. So, even in the
case of official reserve holdings, it is easier for the American government
to facilitate investment in dollar denominated assets than to impede
investments in non-dollar assets.

The third face of power

The third face of power is the most ambiguous but also the most insidi-
ous (and possibly the most compelling) for understanding the dollar’s
resilience as the world’s first currency. This form of power socializes
states and non-state actors into supporting the dollar by affecting percep-
tions about the United States and the dollar. Empirically, this face of
power is hard to study because it does not leave a trace. There are certain
broad actions the United States can take to create a context where US
preferences are understood and others adapt to them. However, the
silent consensus in support of American power and the dollar does not
require specific action. The process whereby individuals and groups
internalize US options is therefore much harder to observe. Often these
social dynamics (bandwagoning for instance) are informed by the distri-
bution of capabilities and the position occupied by the dominant power
(cf. Wright, 1942; Waltz, 1979).

Medium of exchange
Using multilateral institutions, the United States has organized states
around a liberal agenda endorsing open cross-border flows of goods and

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capital. Through the World Trade Organization, the World Bank, IMF
and Bank for International Settlements, there are regular opportunities
for states to interact, for the United States to voice its preferences, and for
others to come on board. Once American preferences are revealed, group
dynamics often endorse them because voicing public opposition is costly
while voicing public support is beneficial.
Explaining how group behavior transforms into general support for
the dollar is easier to understand in terms of inter-state interactions than
in terms of private interactions. Countless individual decisions influence
the fate of the dollar, but these decisions are entirely decentralized and
there is no deliberative mechanism through which transactions are orga-
nized, although information technology may change this. Whereas pri-
vate use of the dollar is not decided through any institutionalized form
of socializing process, beliefs about the United States and the dollar affect
the desire to transact in dollars and the will to hold dollars. Non-Ameri-
cans accept dollars as a medium of exchange as long as they can reason-
ably expect to use the currency prospectively. Expectations about the
nature and future of American power are partly fact and fiction. Once a
critical mass believes the United States has the wherewithal to continue
supplying the world’s first currency, network externalities, (i.e. the utility
of using a currency because everyone else is using it) kick in to reinforce
the logic of continued dollar use. Since dollars are the most widely
accepted means of international payment today, it is difficult to avoid
transacting in dollars, even if one is willing to incur a cost for using rival
currencies. As emphasized before, when official actors choose which cur-
rency to use as medium of exchange they select the intervention currency
that maximizes market impact.

Unit of account
Since the United States has been the leading economy and military power
since the end of World War II, and also has had the largest product and
financial market, invoicing and settlement of trade in dollars has seemed
obvious. It is not that firms who accept dollar invoicing necessarily do so
because they are daunted by American power, but rather that the system
is such that it is taken for granted that exchanging goods for dollars and
recycling the proceeds in dollar denominated securities is standard pro-
cedure. Challenging how things work is too cumbersome and potentially
costly. This form of power is passive and unintentional and gives rise to
what Jacques Rueff (1972) called the ‘deficit without tears’ and what Jerry
Cohen (2006, 2013) calls the ‘power to defer and deflect adjustment’. It is
pernicious because it is unrelated to anything the United States does at
the time when the constraints are being felt. The thrust of American
power is, in the words of Stefano Guzzini (1993), ‘impersonal’, and

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reverberates as the result of the position the United States occupies in the
international hierarchy. When governments track the dollar as unit of
account, they are not only tracking the stability of the American econ-
omy, they are attempting to secure their economic fate by connecting to
the world’s number one power. As time passes, governments anchoring
to the dollar develop a vested interest in the stability of its value and the
stability of the American economy, obscuring the line between the inter-
ests of the country they represent and the interests of the United States.

Store of value
Private decisions to store value in dollars are, as described above, due to
the range of financial instruments on offer, providing opportunities to
save over different time horizons and at different levels of risk. The polit-
ical clout of an actor can also influence subjective beliefs about whether a
currency will be a good store of value and once formed these expecta-
tions are difficult to change (McNamara, 2008: 449, 454). Consequently,
although saving in dollar denominated assets has not always been a
good way to store value, the United States is considered safe because it is
economically and politically powerful. A country that is able to signal
strict monetary policies by creating and reforming domestic institutions
is particularly well-suited for currency leadership (Walter, 2006). A
capacity for political coercion can also support a currency’s standing by
enhancing the perceived stability and safety of investments (Norrlof,
2010). Official actors also store value in dollar denominated securities to
a greater extent than they do in any other currency. Official reserves are
mostly held in dollars despite the secular decline in its value, the exis-
tence of alternatives and a less obvious quid pro quo for Cold War pro-
tection. Dollars remain an attractive store of value for governments that
believe in the appeal and continuation of American power.

CONCLUSION
Predictions of weakening dollar hegemony are common, and have come
and gone before. Conventional wisdom anticipates a multipolar currency
order. Indeed, some believe it is already here. These forecasts are based
on eroding American capability. The most common evidence cited for
such a shift is relative economic strength as measured by a country’s
share of world GDP, as well as its GDP growth trajectory. But GDP is just
one component of the calculus required to estimate monetary power.
This paper offers a systematic evaluation of the relative monetary capa-
bilities of all countries in the world (i.e. their share of GDP, world trade
and capital markets) as well as other variables relevant for assessing the
potential for currency influence, such as military power and financial

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openness. America’s gathering public debt is also seen as contributing to

currency multi-polarity. Therefore, I rank the sovereign debt of all coun-
tries in the world. A consideration of these indicators of relative mone-
tary capability shows that pessimism about the durability of dollar
hegemony is built on faulty premises.
While repeatedly predicting that dollar hegemony will end is effective
because it is unlikely that dollar hegemony will last forever, any compel-
ling prediction of how it will end must begin with what sustains it. My
second contribution is to offer a comprehensive assessment of how differ-
ent power mechanisms have sustained dollar hegemony. My analysis
connects monetary capabilities with currency hegemony through a com-
prehensive evaluation of relative currency influence, that is the extent to
which national currencies are used internationally in official and private
markets. By examining how different channels of power motivate private
and official actors to use dollars as a medium of exchange, unit of
account, and store of value, I clarify the opportunities and constraints the
United States faces when promoting dollar use. This provides a richer
explanation of dollar hegemony than accounts based on incumbency
advantage, inertia or network externalities. Focusing on examples where
monetary capabilities are actively mobilized or work passively through
rule-making, framing attempts, or socialization to alter options for using
competing currencies gives further specificity to Benjamin Cohen’s and
Susan Strange’s insight that America’s structural power is an important
component of dollar hegemony. An investigation of the various paths
through which the United States projects power over private and official
actors highlights the distinct functions currencies play and how the
United States exerts influence over the interaction between private actors
and their interactions with states. This framework is sufficiently flexible
to incorporate one of the most important expressions of monetary power
emphasized by Cohen: the autonomy to ‘defer and deflect balance of pay-
ments adjustment’. Finally, quite differently from accounts based on
Susan Strange’s currency status perspective, this approach is able to
explain the long cycle of dollar hegemony by tracing how the United
States has converted monetary capabilities into currency influence in a
way that is theoretically rigorous and empirically tractable. Using differ-
ent lenses of power to explore how other Great Powers leverage mone-
tary capabilities is a fruitful avenue for predicting how major currencies
rise and fall.

ACKNOWLEDGEMENTS
I would like to thank the editors, three anonymous reviewers, Jerry
Cohen and David Welch for excellent comments.

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NOTES
1 These estimates are for 2011.
2 For excellent reading on the politics of dollarization see Cohen, The Geography
of Money (Ithaca, NY: Cornell University Press 1998), The Future of Money
(Princeton, NJ: Princeton University Press, 2004)., Helleiner, ‘Below the State:
Micro-Level Monetary Power”, in David M. Andrews (ed.) International Mone-
tary Power(Ithaca, NY : Cornell University Press, 2006). See also Kirshner, Cur-
rency and Coercion (Princeton, NJ: Princeton University Press, 1995).
3 This is Cohen’s idea of power as autonomy.

NOTES ON CONTRIBUTOR
Carla Norrlof is Associate Professor in the Department of Political Science at the
University of Toronto, Canada. She is the author of America’s Global Advantage:
US Hegemony and International Cooperation published by Cambridge University
Press (2010).

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