An interview with Mona Ali in Jacobin:
John-Baptiste Oduor: It is often said that the dollar is the world’s reserve currency. What does this mean and how does it relate to the currency’s dominance?
Mona Ali: The dollar’s dominance is often attributed to its status as the key international reserve asset. This shorthand lends the impression that money is a commodity (a thing), when in fact for the most part money is credit (a social relation). While it is true that trillions of dollars are held as safe assets by investors and governments around the world, the bulk of these dollars in countries’ foreign reserves are credit contracts — predominantly US Treasuries.While dollar dominance is often attributed to its reserve currency role, the dollar’s entrenchment in the financial system arises from its dominance in international credit creation. It is the unit of account undergirding the world’s deepest and most dispersed credit system, which includes, but is hardly limited to, Treasuries and bank loans. The power to create dollar-denominated credit isn’t restricted to the United States’ monetary authorities; foreign banks issue more dollar loans than US banks.
As the dollar system is a globe-spanning credit regime, its crises have correspondingly global consequences. When excess credit creation results in financial crisis, the United States’ central bank, the Federal Reserve, steps in to stabilize dollar markets. Yet it does so in ad hoc fashion.
More here.
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