The War at the End of the US Dollar

The history of the US dollar is closely linked to US involvement in a series of wars. The Bretton Woods Accord and the resulting world reserve currency status of the US dollar were both byproducts of World War II (1939-1945).

The Korean War (1950-1953) was followed six years later by the Vietnam War (1959-1975) which led to the end of the Bretton Woods system. Unfettered by the constraint of gold backing after 1971, the US dollar became a weapon in the Cold War (1945-1991) between the US and the former Union of Soviet Socialist Republics (USSR). Each war corresponded with an increase in the US money supply. The Gulf War (1990-1991) was followed by wars in Afghanistan, beginning in 2001, and in Iraq, beginning in 2003, and, simultaneously, by the US-led War on Terror that began in 2001. Like the wars that came before them, the recent staccato of US wars is correlated with increases in the US money supply. The Iraq war, for example, is estimated to have cost as much as $4 trillion.

The loss of value in the US dollar caused by excessive expansion of the money supply, together with rising demand for raw materials from emerging economies, has led to permanently higher global commodity prices. Higher crude oil prices, in particular, have put pressure on the US economy, which is putatively in a gradual recovery from the recession that began in 2007. At the same time, international trade has begun to move away from the US dollar, threatening its world reserve currency status. Given the history of the US dollar, it seems likely that an eventual end of the US dollar’s reign as the world reserve currency will be marked by war. Read More