Why the Dollar Still Rules the World – And Why the Renminbi Isn’t Ready to Take Over

Flame away. I’m in the garden annoying some weeds.

It’s simple. People of the world trust the USA treasury far more than they do from a communist country. The Chinese can offer great returns on investment but it is a huge risk. Would big (and small) foreign investors trust placing their life savings into the hands of the Chinese communist party? I say, HELL NO!

https://www.usnews.com/news/national-news/articles/2026-04-03/china-beats-u-s-in-2025-global-approval-ratings

Inflation hurts the value of the dollar. A quibble in the context. I have read several convincing analyses of why the dollar will remain the international trade king.You are right. I am not keen on videos. They are a waste of time compared to the same information as text.

In Việt Nam hundred dollar bills are the preferred mode of saving money after gold. The number of hundred dollar bills in circulation in Việt Nam fuels inflation of the VND because there are many more of them than come from American banks. A major exưport of North Korea is bogus hundred dollar bills to SEA. The fakes are high enough quality that only the US Treasury has equipment that can detect them. and UST is holding it close. Yhe result is that $100 bills flood SEA and are totally accepted.

Uncle Sam has made a series of changes in the bills designed to make them more secure. Nork is shipping them with the new changes to SEA before we even see them in the banks. Officially the government banks do not accept hundred dollar bills but actually they do. I sent $2000 in $100s to a friend and protégé to pay off the rest of her home mortgage. It arrived and was taken to the bank to pay it off in $100s.

People prefer to save money with the bills because they are easy to stash and increase in value as the VND loses value compared to the dollar.

I’m reluctant to post a video as the average Freeper will respond with an angry, “I don’t watch videos!!!”

Thanks for at least providing what looks like an informative vid, yet given a choice, why should one prefer a one hour vid for mere information which - in this case - does not even have a transcript, which themselves take time to render into a readable article format - when text can be read much faster, and excerpts shared, etc.?

Thus you have just 5 responses.

Correction of my post above on the YouTube vid: the option for the transcript (hit More in the vid description) did show up, but not the option to exclude timestamps. However, I was able to copy it all, and pasted that in https://fixmytranscript.com, when pasted that in https://text-html.com/, and thus we have (by the grace of God):

Hi, I’m Dong Seong. Welcome to Digging into China, where we take a deep dive into what’s really happening in China and share some unique insights.

In China, we often hear the term “dollar hegemony.” People bring it up when talking about oil, and they bring it up when they talk about trade. It sounds like America only became powerful because of this dollar hegemony. So, how did dollar hegemony even come about? A lot of Chinese people think the United States just forced the world to use the dollar by tying it to oil—basically pointing a gun at everyone and saying, “Use the dollar or else.” Now, as people see America declining, many in China also think dollar hegemony is on the verge of collapse. They believe the renminbi is a rising new currency that will soon replace the dollar.

Today, let's talk about the dollar. America was founded in 1776, but for a very long time, the United States didn’t even have its own currency. What people mainly used back then was the Spanish silver dollar, whose value came purely from the amount of silver it contained. After independence, each state had its own messy currency. During the Revolutionary War, to raise money, Congress issued continental currency, and the 13 states each printed their own money, too. By the time the war ended, pretty much every local government had wrecked its own credit.

One of the founding fathers, Alexander Hamilton, looked at this mess and realized that without a single unified currency, America was going to fall apart sooner or later. In 1792, Congress passed the Coinage Act. It took away the states’ power to issue money and unified the currency. That’s when the U.S. dollar was officially born as a real national currency. But the dollar back then was nothing like the dollar we know today.

First of all, almost every country in the world was on the gold or silver standard at the time. So the first version of the dollar was tightly tied to gold and silver. One dollar equaled about 24 grams of pure silver or 1.6 grams of pure gold. The actual $1 coins really contained that much gold or silver. In those days, dollars were only issued as coins. There was no paper money.

The American people at the time, including big figures like Thomas Jefferson and Andrew Jackson, had developed a serious fear of big banks. They had been badly exploited by the Bank of England under British rule, so they were terrified of letting big banks and big capital take control of the country and squeeze ordinary folks. Because of that, early American laws on banking were extremely strict. American banks were not allowed to open branches overseas or do international business. For a long time, it was even illegal for a bank to open a branch in another state or even just across the street in the same city. There was no official paper currency, no central bank, and no big banks at all.

Before the Civil War, there were probably around 10,000 different kinds of paper notes floating around the country. Americans even had to buy special books that taught them how to tell real notes from fake ones. The greenback dollar that we are all familiar with today first appeared in 1862. President Lincoln issued it to raise money for the Civil War.

Back then, Britain was the undisputed global financial superpower. They had been issuing official paper currency since 1694, and they completely controlled all international settlement business. Even though America's GDP surpassed Britain's by 1870, and surpassed the Qing dynasty China by 1890 to become the world's largest economy, and by 1912 had the world's largest trade volume, the dollar was still a nobody on the international stage. How weak was the dollar exactly? Internationally, it basically had zero status. Most international trade was settled in British pounds. The dollar was barely even half an international currency. The only place outside the U.S. where you could actually use dollars for cross-border settlement was Canada. If you exported American goods to any country in Europe, they wouldn't accept payment in dollars, and you couldn't even exchange dollars there. If Canada hadn't accepted the dollar, it would have been completely useless outside America. So yeah, it was only half an international currency at best. No one treated the dollar as a reserve currency back then.

Before World War I, central banks and governments around the world held their foreign reserves roughly like this: about 50% in British pounds, 30% in French francs, 15% in German marks, plus small amounts of Dutch guilders and Swedish kronor. There was basically no dollar at all. The two main measures of a currency's international importance—transaction volume and the reserve holdings—were close to zero for the dollar. America had become an economic giant but a financial dwarf.

What did this lack of international status mean for ordinary Americans? It meant they got charged a cut on every single cross-border deal. Let me give you an example. In the 1890s, imagine an American coffee shop owner in New York wanted to import some good coffee beans from Brazil. He needed something called a bill of exchange. You can think of a bill of exchange as a kind of future withdrawal slip with a set time limit. If shipping coffee beans from Brazil to America took 90 days, then the bill would be due in 90 days. The Brazilian seller could take that bill and eventually get paid, but he had to wait. From this system came two important ideas: acceptance and discounting.

Acceptance is basically a guarantee. The New York merchant gives the Brazilian seller a bill of exchange. The Brazilian wants to know if that bill is actually good, so a bank has to step in and guarantee it. That’s called acceptance.

Discounting is when the Brazilian seller says, “I can’t wait 90 days. I need the money today to pay my workers.” He can take the bill to a bank and get cash right away. But the bank charges a fee for that early payment. That fee is the discount.

Of course, whether it’s early or on time, the bank needs proof that the goods were actually shipped to prevent fraud. You have to show shipping documents, bill of lading, and insurance that the bank accepts. So, here is the full process for our New York coffee merchant buying Brazilian beans. He had to go to a British bank to get the bill of exchange issued. Why not an American bank? Because those tiny American banks couldn’t even open a branch across the street—who would trust them? The British bank took a cut just for issuing the bill.

Then after the Brazilian shipped the beans, he would go to a British bank to discount the bill and get charged another fee. An American and a Brazilian doing business had nothing to do with Britain, yet because of the pound’s international status, the British were able to sit in the middle and collect the tolls the whole time. On top of that, since discounting and acceptance involved international shipping documents and insurance, British banks usually only accepted British insurance and British shipping papers. That meant the British basically monopolized international shipping and marine insurance too. American guys were stuck paying these financial tolls to the British on every international trade deal.

Everything changed in 1907. The U.S. stock market crashed and a massive financial crisis swept across America. Because there was no central bank and no real systemic financial system, the crisis hit the economy like a wrecking ball. A huge number of American banks and individuals went bankrupt.

Why does the lack of a proper financial system make a crisis so much worse? This is where the concept of the lender of last resort comes in. It is one of the most important jobs of a modern central bank—basically, the ultimate ICU for the financial system. In simple terms, when a financial crisis hits, everyone panics. People rush to the banks to withdraw their money—that’s a bank run. Bank runs can easily cause banks to fail. Then banks stop trusting each other and refuse to lend to one another. They also stop lending to businesses to protect their own cash. Businesses start failing, more banks fail, and people panic even more. The whole system runs out of liquidity and falls into a vicious cycle. At that point, you need a central bank that can print money and pump liquidity into the market to stabilize everything because it’s the final backstop. It’s called the lender of last resort.

America at the time had a broken banking system and no central bank at all, so nobody was there to play that role. That’s why the 1907 crisis spread so fast it nearly threatened the survival of the country. In the end, it was a private banker, the 70-year-old J.P. Morgan, who got together with a group of businessmen and formed a private consortium to rescue some of the big companies and banks. He basically acted as the lender of last resort and that’s what kept the American economy from completely collapsing.

America survived the crisis, but it left a huge scar on the national psyche. The country suddenly realized a terrifying truth: the financial lifeline of the world’s top industrial power was completely dependent on the mood and health of one 70-year-old man. What if the next crisis came and Morgan wasn’t there or he just decided not to save the country this time?

From then on, Americans finally understood how important a sound banking system is for the economy. So in 1913, President Wilson signed the Federal Reserve Act and officially created the Federal Reserve System—the Fed we all know today. Many of the older restrictions on American banks, like the ban on opening overseas branches, started to be lifted. This change finally allowed America's financial industry to become normal and professional instead of the chaotic mess it had been. It also gave the dollar the financial foundation it needed to become an international currency.

Of course, at this point, I have to say America's national luck was really something. Just the second year after the Fed was created—and the second year after those banking restrictions were eased—a massive stroke of fortune fell into the dollar’s lap. World War I broke out in 1914. All of Europe went up in flames. Two things happened during the war that quickly boosted the dollar's international standing.

First, although it was called a world war, the main fighting was in Europe. As soon as the war started, the old capitalist powers—Britain, France, and Germany—cranked up production of weapons and supplies. To raise more money, they all abandoned the gold standard and started printing money with no anchor. That naturally destroyed confidence in the British pound, the German mark, and the French franc. Meanwhile, the dollar was still directly tied to gold, so it suddenly became very attractive. Many countries started adding dollars to their reserves. By the end of World War I, the dollar had become one of the main reserve currencies for central banks around the world, making up about 28% of total reserves. It still wasn't as big as the pound, but it was a huge improvement from zero.

The second thing was that the war needed huge amounts of steel for guns and cannons. America, the world's steel king at the time, suddenly became the most wanted supplier. Germany, France, and the British all rushed to buy American steel. And since those countries had abandoned the gold standard, their currencies were changing value every day. Americans got tough and insisted on being paid in dollars for all those war materials.

Before the war, the British, French, and Germans had looked down on America as a nouveau riche upstart and refused to use dollars. But now they had no choice. By the end of the war, the percentage of America’s own import and export trade settled in dollars finally broke 20%. It still wasn’t high, and it was only America’s own trade, but again, way better than zero.

At this point, the dollar was no longer just a roadside nobody—it had leveled up. Both its reserve holdings and transaction volumes jumped from zero to become a strong second-tier international currency right behind the champion, the British pound.

Of course, World War I ended fairly quickly. After the war, Britain went back on the gold standard and the pound as an old trusted currency immediately recovered a lot of its strength. But it didn’t last long. Part of the blame goes to Britain’s overall decline, but another part goes to a man we’ve all heard of: Winston Churchill, who was Britain’s Chancellor of the Exchequer at the time.

He made a move that showed a serious lack of economic common sense and it helped destroy the pound’s dominant position and made Britain’s economy even weaker. Before World War I, the exchange rate between the pound and gold was fixed—one pound equaled 7.32 grams of gold. America’s rate was one dollar equal to about 1.5 grams of gold. Simple math tells you the pound should have been fixed at about $4.86. But because Britain printed so much money during the war, the actual market rate had fallen to around $4.40 per pound, which meant one pound could only buy about 6.6 grams of gold—a roughly 10% devaluation.

Churchill had two choices: restore the pre-war exchange rate with gold or restore it based on the current actual purchasing power. The famous economist Keynes advised Churchill to go with the current rate and even suggested not returning to the gold standard at all. But Churchill thought the British Empire keeps its word. “We only left gold as an emergency measure during the war. Since we made a promise, we must keep it.” So he restored the pound to the old pre-war rate with gold.

This decision caused serious problems. First, it caused the pound to appreciate sharply, which crushed British exports. The products of Britain, dependent on coal, steel, and textiles, suddenly became extremely expensive on the world market and basically unsellable. On top of that, the British government had printed a huge amount of pounds during the war, but didn’t have nearly enough gold to back it up. During the war, Britain had spent massively buying stuff from America, and after the war, the economy was weak, so a lot of gold had flowed to the United States. If everyone tried to exchange their pounds for gold, Britain simply didn’t have enough to prevent a run on gold.

The Bank of England was forced to raise interest rates sky-high. The idea was, “If I offer really high interest, people will keep their money in pounds in the bank instead of demanding gold.” But high interest rates made the pound appreciate even more, creating an extra premium. This put the British economy into a vicious cycle. The economy got worse, so there was even less gold. So, they raised the rates again, which made the pound stronger, which hurt the economy more—and on it went.

With Britain in this state, a bigger shock was coming that would finally knock the pound off its throne as the world’s top currency. That shock was the Great Depression in America. Although the Great Depression started in the United States, it actually destroyed the pound and reshaped the entire world monetary system, pushing it into the 2.0 era.

In October 1929, the Wall Street stock market crashed, triggering the Great Depression in America. It then spread around the world and caused the worst economic crisis in human history. To fight the crisis, countries started raising tariffs and building trade barriers to protect their own industries and sales. Of course, when everyone used higher tariffs, countries also used currency devaluation as a weapon. If you raise tariffs by 10%, I’ll devalue my currency by 10% and cancel it out. So, countries began actively devaluing their own money. The fastest way to do that: abandon the gold standard. The old big brother, Britain, was the first to act in September 1931, announcing that the pound would permanently leave the gold standard. The pound crashed, and dozens of other major countries, including Germany, quickly followed. America held on to the gold standard for a while but eventually gave up too. It just couldn’t hold out. This global race to devalue currencies by abandoning gold threw the entire world financial system into complete chaos.

Around this time, a famous school of monetary economics started to rise in America—the hegemonic stability theory led by Charles Kindleberger. Before this, the competition between America and Britain for international monetary dominance was mostly about who got to collect the tolls on international trade.

But after the hegemonic stability theory came out, the idea changed. According to the theory, the reason the 1929 American Great Depression turned into a global financial crisis that wrecked so many countries was mainly because there was no dominant world currency and no organization to coordinate the global money. In Kindleberger's view, the two powers set up between the British pound and the American dollar was exactly what allowed the financial crisis to spread so quickly around the world. Kindleberger argued that although the British pound still held the position of world leader, Britain’s national power had weakened and it could no longer act as the stabilizer of the global economy. At the same time, although America had overwhelming economic strength, the dollar wasn’t strong enough yet, and America lacked both the political will and the institutional experience to be the international leader. This situation caused a crisis, and countries started racing to devalue their currencies, which destroyed the world economy. Therefore, the international monetary system had to change and the world needed a single hegemon to manage the global currency.

As soon as this theory came out, it quickly won support from almost all economists, including Keynes. A consensus began to form inside many countries that the international monetary system needed an upgrade. But even though the consensus was forming, no one had time to act on it because World War II broke out. Only after the war ended did the countries finally have the time to deal with the problem.

In 1944, on the eve of the end of World War II, a conference was held that would decide the future direction of the world currency and laid the initial foundation for dollar hegemony. That was the famous Bretton Woods conference. At the meeting, all the countries’ representatives agreed that there should be an international dominant currency. There was consensus on that, but there was a big fight over which currency it should be. America obviously wanted the dollar to be the international hegemon, while Britain, the previous big brother, naturally wanted to fight for it.

By then, Britain knew that World War II had nearly destroyed the country. Its economic and financial strength had been greatly reduced, so making the pound the international hegemon again was impossible. So the British delegation, led by Keynes, proposed a compromise plan: the international currency plan. Keynes wanted to introduce a super international currency called the bancor, as the common currency for all sovereign nations.

The American representative, Harry Dexter White, clearly wanted the dollar to become the world’s main currency, with the dollar directly tied to gold and then all other countries’ currencies tied to the dollar. In the end, White's plan won overwhelming support. Of course, this result simply reflected America's overwhelming strength at the time. At that moment, America accounted for about half of global GDP, held roughly two-thirds of the world’s gold reserves, and was the world’s largest creditor nation and industrial producer. In comparison, Britain had suffered massive destruction during the war. Its treasury was empty, it was heavily in debt, and it desperately needed American post-war aid. It had no ability to compete with the United States.

In the end, the dollar became the world’s main currency. Countries began tying their currencies to the dollar, and the world monetary 2.0 era was formed. But this dollar and the 2.0 system had one huge bug. And what was that bug? It was something economists called the Triffin dilemma.

The Triffin dilemma goes like this: if a country’s currency wants to become an international currency that other countries use for trade and reserves, there has to be a precondition. There have to be lots of that currency available in the market. Only if there are plenty of dollars out there can it provide enough liquidity. For example, if China wants to hold $100 million as part of its central bank reserves, China first has to get those dollars somehow. The same goes for using it in frequent transactions. The currency has to be widely circulating. So, how do you get more of that currency into the market?

For the domestic market, it’s simple—just print more. But on the international level, the country has to run a trade deficit on its current account. In plain terms, other countries have to buy less from America than America buys from them so they can earn dollars. If China trades with America but can't earn dollars from it, where is China supposed to get the dollar for its reserves? And the faster the world economy grows, the more currency is needed. So, America's trade deficit has to get bigger and bigger.

But here comes the bug. If a country keeps running a big trade deficit and constantly pumps its currency out into the world, liquidity is guaranteed. But when you issue that much money, people start asking, “Does this country really have enough gold?” Gold mining simply cannot keep up with the growth of the world economy or the growing demand for currency. In theory, to maintain the convertibility of dollars into gold, America actually needed to keep taking dollars back from the world—meaning America had to run a trade surplus. So, to keep dollar liquidity and supply high, America had to run trade deficits. But to keep the dollar credible and maintain enough gold reserves, America had to run trade surpluses. Maintaining a surplus would cause a shortage of dollar liquidity worldwide, while allowing big deficits would make the world lose confidence in the dollar. That's the Triffin dilemma.

In the early years, America actually avoided the Triffin dilemma by accident. How? Through the famous Marshall Plan. The Marshall Plan was America giving aid to Europe for free. This quickly got dollars circulating in those countries, put dollars in their hands, and provided liquidity to the market. At the same time, America was still the world’s largest exporter and the largest trade surplus country. By selling its manufactured goods, it took dollars back in and kept its gold reserves sufficient to cover the dollars circulating in the world. In this way, America temporarily avoided the Triffin dilemma. But as soon as Europe and Japan successfully rebuilt and their manufacturing recovered, American goods weren’t as easy to sell anymore. On top of that, the Vietnam War broke out and America’s spending increased. America changed from a trade surplus country into a pure trade deficit country, and the Triffin dilemma started to play out.

Even though America continued to provide liquidity to the world through its trade deficit, it had no good way to take the dollars back. America’s gold reserves and the amount of dollars in circulation started to seriously diverge. By 1971, America’s gold reserves were only about $10 billion while the dollars circulating outside were worth about $50 billion. The Bretton Woods system was becoming impossible to maintain.

Finally, on August 15, 1971, Nixon announced in a television speech that the United States would completely suspend the convertibility of the dollar into gold. The core pillar of the Bretton Woods system collapsed and the dollar quickly began to lose value. At the time, most people thought the dollar was finished. The New York Times, for example, believed the dollar would lose its position as the leading international currency and fall back to second-tier status. But the final result was completely unexpected. The dollar did not lose its international dominant position after decoupling from gold. Instead, it led the world monetary system into the 3.0 era—an era where national credit, rather than gold, backs the currency.

In mainland China, the official explanation for why the dollar did not collapse after 1971 is called the dollar-oil system. It did help the dollar get through the crisis in 1971, but the way people understand that help is often misunderstood. After the first oil crisis broke out in 1973, oil prices quadrupled. Against that background, the U.S. Secretary of State Henry Kissinger reached a far-reaching agreement with Saudi Arabia. Saudi Arabia agreed to use the dollar as the only currency for pricing and settling oil trade and promised to reinvest those dollars back in the United States. In exchange, America would provide military protection and weapons to Saudi Arabia. Later, many other OPEC member countries also accepted similar arrangements. The dollar officially became the only settlement currency for oil.

Many people see this as oil becoming “liquid gold” and giving the dollar a new anchor. But this understanding is actually flawed because it still thinks in terms of the old 2.0 world monetary logic. What really mattered about the petrodollar system for America was that it made U.S. treasury bonds the replacement for gold. This solved some of the problems the dollar had during the Bretton Woods period and set the tone for America’s future development.

To explain this clearly, I need to bring up a somewhat complicated economic concept: the current account and the financial account. The current account is basically a country’s real trade account in international commerce. For example, China sells goods all over the world but buys very little back. China now has a huge trade surplus. That surplus in physical goods shows up in the current account and makes China’s current account surplus very large.

But for America to provide the dollars and liquidity to the world, it had to go in the opposite direction. It had to maintain large trade deficits. Otherwise, there wouldn’t be enough dollars in the world. For America, this meant the current account has run a steady deficit ever since the end of Bretton Woods—and that deficit has grown larger and larger as global demand for dollars has increased.

If a country runs persistent deficits on its international trade balance, the normal result should be that its currency depreciates sharply. This is the same logic people had in 1971 when they thought America didn’t have enough gold. If you do business with me and you keep getting stuff from me for free, of course I wouldn’t like it and your currency should lose value.

But international balance of payments has another account besides the current account—the financial account. The biggest difference is that the financial account doesn’t judge physical trade amounts. It judges the amount of capital flowing into a country. Here, America is the exact opposite of China. People around the world go to America to invest in U.S. stocks and buy U.S. treasury bonds. But Americans rarely invest in China's A-shares or buy Chinese government bonds. In the capital markets, America enjoys a massive surplus in its financial account. When you add the two together, they balance out America's overall international payments. This balance ensures the dollar doesn’t experience wild swings up or down. It finally allowed America to keep sending dollars out to the world through trade deficits without the dollar collapsing in value.

China, of course, is completely the opposite. Because China has a huge trade surplus, its current account surplus is enormous. If it doesn't run a deficit in the financial account, the renminbi would appreciate sharply. Chinese exports would suffer and the economy would collapse. That’s why the Chinese government has to buy U.S. treasury bonds, invest overseas, and do projects like the Belt and Road Initiative to create a financial account deficit and keep the overall balance of payments stable.

Now, let's come back to the petrodollar system. Why was it important? Because it was America’s first real attempt to maintain dollar stability and balance its international payments this way. In the Middle East, America used the dollars to buy oil, creating a goods trade deficit that also provided dollars to the world. The Middle Eastern oil tycoons then took those dollars and invested them back in America by buying U.S. treasury bonds. This created a surplus in America's financial account.

For the Middle Easterners, it wasn’t a bad deal. They still owned the dollars and America was providing free military protection. For America, this whole cycle finally achieved the balance in its trade accounts. We can also see that America’s credit—its treasury bonds—began to replace gold as the new anchor for the dollar. As long as people still trusted America and were willing to invest money there and buy U.S. government debt, creating a surplus in America’s financial account, America could continue to supply dollars to the world.

This was much better than using a limited amount of gold as the anchor, because credit is to some extent unlimited while gold is limited. The petrodollar system was indeed important, but its real importance was that it opened the door and set the basic pattern for the later dollar model. It didn’t mean the dollar suddenly seized hegemony just because of oil.

Once Americans saw that this approach could work, they gradually began to strengthen and maintain this logic. This strengthening happened in two main ways. First, America continued to build itself into the center of world investment, making sure that not just the Saudi tycoons, but the people from all other countries would invest in America, especially by buying U.S. treasury bonds, which became the representative of safe assets worldwide.

Second, America began to take on the responsibility of the world’s banker, fixing the problem that Britain had had as the old monetary leader—not doing enough. We can look at a few key moments to illustrate this process.

The first key moment was the Volcker shock in the late 1970s. America was facing serious inflation—high inflation combined with low growth. This made America no longer an attractive place to invest. The dollar's international credibility hit rock bottom and the dollar's usage share started to decline. In 1979, Paul Volcker became chairman of the Federal Reserve. As soon as he took office, he adopted extremely aggressive tightening policies, raising interest rates to an unprecedented level—above 20%. This later became known as the Volcker shock.

Although it immediately caused a serious recession in America and massive unemployment, it successfully brought the inflation rate down from double digits to below 4%. This protected the value of the dollar and the value of U.S. treasuries. This move by Volcker showed the world a different kind of hegemon. Remember what Britain did when it faced its own economic crisis as the old monetary leader? It devalued the pound like crazy to protect its own economy, which then led other countries to devalue their currencies too and threw the global economy into chaos. But when Volcker faced America’s crisis, he did not choose low interest rates, sacrifice the dollar, or sacrifice treasuries to stimulate the U.S. economy. Instead, he chose to protect the dollar and U.S. treasuries first in order to stabilize the international monetary system. This showed America's sense of responsibility as a great power.

Volcker personally showed the world that America was no longer the second Britain. As the world’s banker, the Federal Reserve had its own responsibilities. Although the Volcker shock looked like it severely damaged the U.S. economy in the short term, in the long run it established the Fed’s golden reputation, benefited the U.S. economy, strengthened the credibility of U.S. treasuries, strengthened the credibility of the dollar, and made the dollar 3.0 system run much more smoothly.

The second key moment came during the 1997 Asian financial crisis. This was when the idea of the dollar and U.S. treasuries as “paper gold” really started to take shape. In 1997, the Asian financial crisis hit. Countries including Thailand, Indonesia, Malaysia, and South Korea were deeply affected. Unlike a previous crisis, this one started with the collapse of multiple countries’ currencies. The Thai baht and several others plummeted rapidly. Facing this devaluation, everyone was looking for safe assets. At that time, the dollar and U.S. treasuries remained exceptionally strong. A large number of investors started pouring money out of the third countries and moving it back to America to protect their assets. This capital flight caused the dollar to appreciate even further.

The concept that the dollar and dollar-based U.S. treasuries were like a paper gold began to form during this period. In normal, peaceful times, the dollar price stays relatively low. But whenever war, turmoil, or economic crisis hit, the dollar price starts to surge. It behaves like gold. This became a common understanding about the dollar.

Of course, this understanding was fully reinforced during the 2008 global financial crisis. The 2008 global financial crisis was different from the 1997 Asian financial tsunami. The 2008 crisis started with the U.S. subprime mortgage crisis and the bankruptcy of Lehman Brothers. At first glance, this looked like the collapse of American banking. The normal logic would be that large amounts of capital would flee America. People would dump dollars and U.S. treasuries and switch to other currencies or other countries’ government debt. But the actual result was the opposite. Capital was afraid that the American financial crisis would spread and cause other countries' currencies to depreciate even faster than the dollar.

So instead, the world started buying dollars and U.S. treasuries on a large scale. The subprime crisis not only did not cause the dollar to depreciate, it actually made the dollar rise sharply, appreciating 24% within a year. People realized that even when the crisis started in America, the dollar would not fall and might even rise. This further confirmed that the dollar functions as a paper gold with safe haven properties.

And in the 2008 subprime crisis, the Federal Reserve took another big step forward and became the true world banker. In the 1907 crisis we mentioned earlier, we talked about the concept of the lender of last resort—something a national central bank is supposed to do. In the 2008 crisis, the Fed became the lender of last resort for the whole world. Before the subprime crisis, because of lax government regulation in America, there were huge numbers of loans given to people who had basically no income. Of course, because their credit was bad, these loans had much higher interest rates. It was obvious these loans weren’t sustainable. These people had a low income and a weak ability to repay, and charging them even higher rates was just asking for defaults. Soon enough, in 2008, these junk loans all blew up together.

The problem was that although these subprime loans mainly appeared in America, it wasn't only American banks that issued and invested in them. European banks had also invested heavily in these products. Before the crisis, they borrowed large amounts of short-term dollars to invest in U.S. subprime related assets. When the crisis hit, these European banks faced a fatal problem: they owed the debts in dollars. But their own central banks, like the European Central Bank, could only create euros, not dollars. They had no way to provide the liquidity to these banks so they could repay their debts.

On top of that, during a financial crisis, there is usually a run on the currency. So, dollars become scarce in the market. European banks as a whole suffered a severe liquidity shortage. If this continued, it was very likely that the European banks and the companies would all go bankrupt due to lack of liquidity. Just like America in 1907, at this critical moment, the only institution in the world that could create the dollars, the Federal Reserve, stepped in. It made a historical decision. It established central bank swap lines to provide liquidity to foreign central banks.

The mechanism worked like this: The Fed signed swap agreements with other central banks. The foreign central banks would deposit a certain amount of their own currency into the Fed’s account and the Fed would deposit an equivalent amount of dollars into those central banks’ accounts. The foreign central banks would then lend those dollars to their own commercial banks and companies that urgently needed them. When the agreement expired, both sides would exchange the currencies back at the original rate.

After Lehman Brothers collapsed in September 2008, the Fed quickly set up swap lines with the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada. Later, it expanded to central banks in South Korea, Brazil, Mexico, Singapore, and others. At the height of the crisis, the Fed provided more than $580 billion through these swap arrangements.

At the time, this looked extremely risky. In the swap process, some countries, like those in the European Union, were relatively safe. Their economic strength meant they could probably repay. But countries like Brazil and Mexico carried the risk of complete economic collapse. Their currencies could become almost worthless due to massive devaluation. In that case, the money the Fed provided might never come back, because according to the agreement, those countries were supposed to exchange the currencies back at the original rate years later. So, as soon as this swap program was announced, it faced heavy criticism inside the United States. Many people said it was using American taxpayers' money to fill holes in other countries.

But the Fed once again proved its reliability as the true world banker through this action. Those $580 billion quickly eased the dollar shortage in many countries. After the crisis, the Fed officially became the world’s lender of last resort and, in a real sense, the world’s central bank. The several crises that followed only continued to strengthen these two concepts.

In 2010, Greece had a debt crisis that triggered the euro crisis. After America stepped in again, the dollar rose 19%. In 2020, when the COVID pandemic hit, America once again printed money heavily to provide the liquidity to the world and the dollar rose 8% in the early stage. In 2022, when the Russia-Ukraine war broke out, the Fed again provided liquidity and the dollar as a safe haven asset rose more than 27% at one point.

We often hear people say that America is constantly printing dollars and issuing treasury bonds to exploit the whole world. It’s true that by printing money and issuing treasuries, America can let its people consume without producing as much—essentially borrowing money from other countries to spend. But from the logic of the world financial system, there is also a certain inevitability to this. To some extent, America is doing this to provide liquidity to the world.

We’ve talked about how the dollar built its own hegemony. Now, let’s talk about the problems that dollar hegemony faces today. [snorts] There are definitely some problems with dollar hegemony right now. But most of them are flaws that are built into the system itself.

First, because America always needs to provide liquidity and dollars to the world, it must maintain a relatively high trade deficit. If the trade deficit disappeared, the world would lack dollars. In order to maintain this trade deficit, the American people have fallen into a somewhat awkward situation. Americans have to consume, and they have to consume a lot, and they can’t consume too many American-made products. Otherwise, the trade deficit wouldn’t be big enough. This has caused a lot of dissatisfaction among many ordinary Americans, especially manufacturing workers.

America’s trade deficit has also led to the hollowing out of domestic manufacturing and a decline in military production capacity. It has left many lower-income Americans without good job opportunities. This has turned into a new version of the Triffin dilemma. A country that wants its currency to be the world currency must maintain a large trade deficit, but if the trade deficit becomes too large, it will cause the country’s manufacturing to hollow out, lose competitiveness, and eventually undermine the credibility of its own currency.

On the other hand, if America wants to maintain a surplus in its financial account and remain the safe haven for the world’s money, it not only has to guarantee the safety of the dollar and U.S. treasuries, but it also has to keep issuing huge amounts of treasury bonds and dollars to fill the massive current account deficit caused by the trade deficit. This has caused America’s own debt to grow enormously. The total size of U.S. national debt has now exceeded $39 trillion, accounting for 137% of America’s GDP. And as long as the world economy keeps growing, this number will only keep getting bigger. It is unlikely that America will reduce this debt, because if it does, it will suck liquidity out of the world monetary system and hurt other countries’ economic development.

Although America’s current debt level is still within a manageable range, continuing like this forever is obviously not a long-term solution. These are all inevitable results of the dollar 3.0 system. This 3.0 system requires America to maintain a financial account surplus, which means America has to keep borrowing more and more money. At the same time, it requires America to maintain a current account deficit, which means manufacturing hollowing out and persistent trade deficits.

You might ask, is it possible that future events could push the world into a 4.0 monetary system and eliminate the current dollar model? It is possible, but based on humanity’s past experience, humans are basically one big messy organization. As long as the current system can still run, people usually don’t change it. In the short term, the dollar 3.0 model and the dollar hegemony do have some problems, but overall they are still under control. The kind of uncontrollable, unfixable contradictions that appeared when the Bretton Woods system collapsed in 1971 have not yet shown up in today's world. So the world monetary 3.0 system, centered on dollar hegemony, should be able to last for quite a long time.

Of course, after talking about the dollar, let’s also talk about the renminbi. A lot of people nowadays think that once the dollar collapses, the renminbi can immediately step up and become the new world dominant currency. To that I can only say, you are thinking a bit too much. Overall, the gap between the renminbi and the dollar is still very large.

The reason the dollar became the world’s dominant currency, besides all historical opportunities, comes down to five key factors: America’s strong economic power; the investment returns and the safety of dollar assets; the sense of responsibility shown by the Federal Reserve; America’s economic structure of running high trade deficits; and the global consensus that the people have about the dollar. All five are indispensable.

What does China have? You could say that on these five points, China only comes close to America in terms of economic strength. That’s the one area where it can put up a fight. The investment returns on renminbi assets—that is, China’s A-shares—are like night and day compared to America. The safety of the renminbi—that’s even more laughable. In a country that lacks the rule of law, tomorrow your assets could all be frozen and you wouldn’t even have a place to complain.

As for China’s central bank, isn’t it basically just a toy in Xi Jinping’s hands? Although Trump has also been interfering with the Fed’s independence, comparing the independence of China’s central bank with the Fed’s is not even in the same league. It’s completely unrealistic. Who would dare let a central bank controlled by Xi Jinping take on the responsibilities of the world’s central bank? The world economy would be ruined by him.

China’s trade structure is even less capable of supporting renminbi internationalization. China has a huge current account surplus, meaning a huge trade surplus. This is the exact opposite of the basic condition needed to become an international currency. China simply cannot provide the world with massive amounts of renminbi liquidity unless China does something like a Chinese version of the Marshall Plan. But given China’s current trade surplus scale, that would mean expanding the Belt and Road Initiative by 100 times. Is that realistic? Obviously not.

As for the renminbi’s reputation as a currency that cannot be freely converted, it is still basically a nobody on the international stage. So if America is already a PhD student in the international monetary world, then China is really just an elementary school student. The maturity of its financial system and its financial reputation are far behind.

The actual data also reflects this. In recent years, we keep seeing Chinese propaganda saying that the renminbi internationalization is progressing very fast, surpassing this and surpassing that. In reality, what they are talking about is just that the proportion of international trade settled in renminbi has increased a bit. It doesn’t mean that renminbi itself has become truly powerful. The main reason for the increase in renminbi settlement is American sanctions on countries like Russia plus the surge in Chinese exports. These have caused some countries to use more renminbi. But when it comes to the real measure of a currency’s international recognition—the proportion held as international reserves—the renminbi’s weight is still lower than even the Canadian dollar. And this number has actually been going downhill in the past couple of years.

In terms of economic size and currency size, China today is a bit like America in 1870—an economic giant but a financial dwarf. The road for the renminbi to truly achieve internationalization is still very long. It would require massive reform of China’s financial system and even deeper systemic and legal reforms. An independent central bank under the rule of law would also have to exist in China. Otherwise, renminbi internationalization will remain nothing more than a self-amusing joke. And under the current Chinese Communist Party, none of this looks likely to happen in the short term.
- DonXiang DiggingToChina2020@gmail.com

TLDR

Wow. Thank you. I had no idea that was possible. I’m not quite in the twenty-first century yet. I’ll know better next time.

That was a good read. Lots of counterintuitive feedback loops in the global financial system.

No problem.

I gravitate toward text articles. Any vids I do watch, the sound is off unless something I want to hear.

That was a good read. Lots of counterintuitive feedback loops in the global financial system.

A chess game for sure! And I could never get as much understanding as I did - and need to go back to it - if I just listened to it.

That was so much fun to read.

Wow. Thank you. I had no idea that was possible. I’m not quite in the twenty-first century yet. I’ll know better next time.

Glad to help. If you want something, search, as someone often has provided it, by the grace of God.

Next, I asked perplexity.ai to consider this transcript of this very informative vid and provide a summation of it to render it more comprehensive.

Summary of "Why the Dollar Still Rules the World – And Why the Renminbi Isn't Ready"
This ~45-minute video by Dong Seong (Digging into China) debunks Chinese nationalist myths about "dollar hegemony" as U.S. imperialism, explaining its historical evolution, structural advantages, and endurance despite predictions of collapse. It's a masterclass in monetary history, contrasting U.S. financial maturity with China's immaturity. Here's a comprehensive outline with key points expanded for clarity.
1. Origins of the Dollar (1776–1913): From Chaos to Foundation
- Post-independence, U.S. had no unified currency—states issued junk "Continental dollars" that collapsed, leading to hyperinflation distrust.
- 1792 Coinage Act (Hamilton): Created gold/silver-backed dollar (~24g silver or 1.6g gold per coin).
- Strict anti-bank laws (Jefferson/Jackson influence): No interstate/overseas branches, no central bank—10,000+ paper notes by Civil War.
- 1862 Greenback: First paper dollar for war funding; still not international.
- Pre-WWI: U.S. GDP #1, but dollar "financial dwarf"—settled only ~1/3 trade; reserves ~0% globally (pound dominated).
2. WWI Boosts Dollar (1914–1930s): Europe's Chaos
- War destroys European gold standards; dollar (still gold-backed) becomes attractive reserve (~28% by 1918).
- U.S. steel exports force dollar payments; ends pound monopoly on bills of exchange (British "tolls" on U.S.-Brazil trade example).
- 1907 Panic: J.P. Morgan's private bailout exposes no central bank; 1913 Fed creation professionalizes banking, lifts restrictions.
3. Bretton Woods Era (1944–1971): Dollar 2.0 (Gold Anchor)
- Post-WWII: U.S. holds 2/3 world gold, 50% GDP; Bretton Woods fixes dollar to gold ($35/oz), others to dollar.
- Triffin Dilemma: Liquidity needs trade deficits (pump dollars out); credibility needs surpluses (pull gold in).
- Marshall Plan temporarily balances; Vietnam War deficits + Europe/Japan recovery unbalances → 1971 Nixon Shock ends gold convertibility.
4. Petrodollar & Dollar 3.0 (1970s–Present): Credit Anchor
- 1973 Kissinger-Saudi deal: Oil priced/settled in dollars; petrodollars recycle into U.S. Treasuries (current account deficit + financial surplus).
- Key stabilizers:
| Crisis | Fed Action | Dollar Response |
|--------|------------|-----------------|
| 1979 Inflation | Volcker 20% rates | Protects Treasury safety |
| 1997 Asia | Liquidity | +19% surge |
| 2008 Subprime | Global swap lines ($580B) | +24% safe haven |
| 2020 COVID | Unlimited QE | +8% early rise |
| 2022 Ukraine | Liquidity | +27% peak |
- Triffin 2.0: Debt >$39T (137% GDP), manufacturing hollow-out, wage stagnation—but world consensus keeps dollar as "paper gold."
5. Why Dollar Endures (5 Pillars)
- Economic power: Still #1.
- Asset returns/safety: Treasuries = global safe haven.
- Fed responsibility: World's lender of last resort.
- Trade deficits: Supplies liquidity.
- Reputation: Consensus trust.
6. Why Renminbi Fails (China's Gaps)
- Economic strength: Close, but...
- No safety/returns: A-shares volatile; no rule of law.
- No independent PBOC: Xi-controlled.
- Trade surplus: Can't supply liquidity (opposite of needed).
- Reserves: < Canadian dollar; declining share.
- Needs: Legal reform, free convertibility, Belt/Road x100 (unrealistic).
Core Thesis
Dollar hegemony isn't "gunboat oil blackmail"—it's organic evolution from crises, Fed credibility, and structural necessities. RMB dreams ignore China's financial infancy (U.S. 1870 parallel: economic giant, financial dwarf). System sustainable until uncontrollable contradictions emerge. >

And in case someone misses the vid the transcript is taken from, it is Why the Dollar Still Rules the World – And Why the Renminbi Isn’t Ready to Take Over, https://www.youtube.com/watch?v=B9chsodjDZk, by - DonXiang DiggingToChina2020@gmail.com

Wow. Thank you. I had no idea that was possible. I’m not quite in the twenty-first century yet. I’ll know better next time.

For the relative few vids worth sharing. Be sure to provide source and attribution.

To copy large sections of text, stop vid, scroll to top of transcript, and presuming you have a keyboard, click cursor at beginning of text, then scroll to end, and then hold the Shift key down and click cursor at end of text which should highlight it (+ release shift key) then right. click on the text and choose Copy.

Hope this helps. http://peacebyjesus.net

Damn! I wasn’t this ready for the twenty-first century. I’ll take notes as soon as I can sharpen my quill. Thanks.

Summary of "Why the Dollar Still Rules the World – And Why the Renminbi Isn't Ready"

1. Origins of the Dollar (1776–1913): From Chaos to Foundation

2. WWI Boosts Dollar (1914–1930s): Europe's Chaos

3. Bretton Woods Era (1944–1971): Dollar 2.0 (Gold Anchor)

4. Petrodollar & Dollar 3.0 (1970s–Present): Credit Anchor

5. Why Dollar Endures (5 Pillars)

6. Why Renminbi Fails (China's Gaps)

Core Thesis