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Review of International Political Economy

ISSN: 0969-2290 (Print) 1466-4526 (Online) Journal homepage: http://www.tandfonline.com/loi/rrip20

Dollar hegemony: A power analysis

Carla Norrlof

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

To link to this article: https://doi.org/10.1080/09692290.2014.895773

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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. Agrowing chorus of observers believes this dollar-centered order is comingto an end. While much commentary revolves around changes in thedistribution of power, measures are only loosely related to the materialbasis for currency dominance. A proper understanding of the dollar’sglobal 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 powercapabilities away from the United States is an insufficient, althoughnecessary, condition for the prevailing currency hierarchy to reverse, thereexists no systematic exploration of how power is exercised whenconverting monetary capabilities into currency influence. This paper offersa systematic assessment of the monetary capabilities and currencyinfluence of all countries in the world as well as an analysis of how thethree 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 mostwidely used by governments, financial institutions, corporations andindividuals. Why does dollar hegemony persist? This paper undertakes apower analysis to explain the sustained importance of the dollar despitewaning confidence in its value and the crescendo of voices claimingAmerican decline.

� 2014 Taylor & Francis

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

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Much is at stake in the debate about the future of the dollar. Thedollar’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 andexchange-rate gains (Rueff, 1972; Cohen, 1977; Strange, 1987; Gourinchasand Rey, 2005, Cohen, 2006, Lane and Milesi-Ferretti, 2008, Norrlof, 2008,2010). Looser constraints on its hegemonic power also help generate astructurally advantageous context with long-term commercial, financialand political gains (Strange, 1987, 1996; Norrlof, 2010). In addition, thedollar has symbolic meaning. The greenback is an emblem of Americanpower coveted by other states. Even though there are important dissen-sions to the view that the international role of the dollar provides theUnited States with an ‘exorbitant privilege’, declinists tend to agree thatdollar hegemony is profitable. In this paper, I assume benefits associatedwith dollar hegemony are real.

If the dollar’s international role is lost or seriously threatened, theAmerican government, as well as its firms and people, must forego animportant source of wealth, convenience and independence. Withoutthe dollar, declinists believe the American government will have aharder time borrowing on favorable terms, which will exacerbateAmerica’s economic and geopolitical descent. For declinists, a substan-tial reduction in the dollar’s international role is not a mere possibilitybut an imminently approaching reality. This bearish outlook is nothingnew — the United States’ capacity to provide the global currency ofchoice is regularly put into question. Beginning with the breakdown ofBretton Woods, and increasingly after the introduction of the euro andthe rise of China, there has been rampant speculation that a multipolarcurrency 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 wereassumed long gone because of a series of inter-related challenges. Cur-rent account deficits, oil shocks, budget deficits, the cost of wars, militaryspending and inflation were said to conspire against the dollar’s interna-tional standing. The reappearance of some of these difficulties, morespecifically 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 hashad a strong grip on popular imagination because perceived internalweakness coincides with the gradual diffusion of power to other actorsin the system. Moreover, actors with growing relative capability areassumed to want to capture the benefits associated with internationalcurrency status. However, if the international role of the dollar endures,important dimensions of the declinist case for eroding hegemony will bemade irrelevant.

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Numerous explanations for the dollar’s central role in the internationalpolitical economy exist but none are based on a comprehensive assess-ment of power relations in the system. Rather, a distinction is often madebetween 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 determinea given capacity for international currency status (Bergsten, 1975; Cohen,1977; Chinn and Frankel, 2008). Liquidity, confidence, and transnationalnetworks 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 (Walter2006; Norrlof 2010). However, as I will show, the separation of politicaland economic factors within the taxonomy developed by Strange (1971)and further elaborated by Helleiner (2008) is too ambiguous to evaluatecurrency status and to forecast shifts in that status. Other explanationsfor the dollar’s durability such as incumbency advantage and inertia beganswers to prior questions. What, for instance, are the options availableto an incumbent not available to other actors (or only available to a lesserextent)? Why, despite misgivings with the dollar, are governments andprivate actors reluctant to shift away from it? The closest economistshave come to explaining incumbency advantage and inertia are networkexternalities — the gravitational pull of a currency because everyone elseis using it (Kindleberger, 1967). The significance of network externalitiesis increasingly disputed (Eichengreen and Flandreau, 2009). Whileaccounts relying on them are not necessarily incorrect they areincomplete.

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 ofAmerica’s monetary capabilities and currency influence. The solidity ofthe foundations of America’s economic hegemony is frequently calledinto 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’sbroader 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 isthe only state endowed with the capabilities to provide a global currency,and that this explains the magnitude of the dollar’s use (i.e., currencyinfluence) 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 UnitedStates’ 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 keydimensions, a transition to a multipolar currency order is unlikely to hap-pen any time soon. A shift in monetary capabilities away from the UnitedStates to another actor is a necessary, but insufficient, condition for theprevailing currency hierarchy to change. In order for another currency toreplace the dollar as the world’s first currency, other countries mustmobilize power capabilities that would enable them to exercise currencyinfluence. Although political forces (Strange, 1971; Cohen, 1977; Walter,2006; Helleiner, 2008; Kirshner, 2008; McNamara, 2008; Norrlof, 2010) arerecognized as important in understanding currency influence, there hasbeen no systematic attempt in the literature to demonstrate how mone-tary capabilities are converted into currency influence, or how the UnitedStates exercises power to sustain the dollar as the leading internationalcurrency. This is not to say that there are no important accounts of howpower works to encourage dollar use. Already in the 1970s, BenjaminCohen 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 theimportance of autonomy as an underrated source and expression ofpower, is extensively developed in Cohen’s (2006, 2013) later writings.Susan Strange (1970, 1987, 1996) also elaborated the concept of structuralpower and discussed how a country could encourage others to use itscurrency depending on the degree of politicization surrounding it, that isdepending 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 differentdimensions of power forces us to think more rigorously about whichopportunities and constraints the United States faces when encouragingdollar use, and to what extent the system, once in place, stabilizes andreinforces dollar use. It also allows us to do so more thoroughly than thegeneral 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 poweroperates 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 bebroken.

AMERICA’S MATERIAL POWER BASE: THEFOUNDATION OF THE DOLLAR’S INTERNATIONAL

ROLE

Monetary hegemony is a political and economic system ‘organizedaround 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 dollaralthough this definition is somewhat different from the way it was firstused (cf. Liu, 2002). One way to think about these responsibilities is inthe 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 interms of influence and autonomy, thus perpetuating currency hegemony.

Monetary capability: The economic dimension

Measuring power is fraught with difficulty and complicated choicesabout how to operationalize concepts, select, and weight indicators. Withthese challenges in mind, the discussion and figures below give usapproximations of the distribution of monetary capabilities and currencyinfluence in the world.

By monetary capability, I mean the underlying resource base requiredfor 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 thecountry with the largest share of the world’s output, tradable goods andassets will be higher than the demand for other currencies, the countrywith the largest share of the world’s GDP, trade and capital marketsshould 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 ofthe 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 capitalmarket size includes stock market capitalization and bond issuance. Ihave 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 degreeof financial openness since capital market size and openness are posi-tively correlated (Chinn and Ito, 2006). However, this approach is notentirely satisfactory for very large countries like China, which can havebig capital markets while pursuing relatively closed policies. Using Itoand Chinn’s (2013) ranking of countries based on capital account open-ness, I show the extent of financial openness relative to the United Statesand 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 thatused 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 strongmilitary 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 capabilityand 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 ofAmerican involvement in Iraq and Afghanistan — this spending doesnot translate into actual, but expended, capability. To produce a conserva-tive rank for the US, I subtract the cost of overseas contingency operationsfrom American military spending when calculating US military capabil-ity. Since my main interest is to evaluate America’s position relative toother countries, this method gives a cautious appraisal of the gapbetween the United States and its rivals (some of which have also beenembroiled in wars). Despite these limitations, defense spending is a moreappropriate measure than the leading index, the Composite Index ofNational 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 foroffensive and defensive actions.

Other political variables that impinge on global currency status areharder to quantify and are only relevant if other criteria such as economicsize or military strength are met. For example, while sound and flexibledomestic 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 tobecome the currency hegemon (Helleiner, 2008) are only effective if thatcountry has the economic and political weight to perform global currencytasks.

In sum, indicators for monetary capability are: a country’s GDP output;trade; capital market (including financial openness) and defenseexpenditures.

Currency influence

Currency influence is a term I use to characterize the extent to whicha specific currency is used internationally. Even when greater use ofthe dollar is due to weak economic fundamentals it is still a sign of thedollar’s influence relative to other currencies. For example, when thedollar has fallen precipitously, allied governments have stepped in tosave the currency, resulting in increased dollar use as measured by theintervention and reserve function. Under these circumstances, greateruse of the dollar reflects a choice to use the currency with the greatestmarket impact. Though currency influence is generally beneficial it alsohas disadvantages. For example, the more a currency is used as store ofvalue, the greater the potential for a run on the currency and/or onbanks. More broadly speaking, the greater a currency’s influence, themore vulnerable it is to sudden withdrawal, which generalize morequickly the larger the scale of use.

My indicator weighs official reserves and private foreign exchangetransactions equally. This indicator of currency influence cuts across thethree roles (medium of exchange, unit of account, and store of value) thata global currency must play in international markets for states and non-state actors (Cohen, 1971, Krugman, 1991). If actors seek to use a specificcurrency as a store of value or as a medium of exchange, they will firsthave to acquire that particular currency in the foreign exchange market.Also, if private actors obtain a currency for settlement purposes, theyalmost 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 tracksome aspect of the issuing country’s economy. In short, this indicatorspans 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 statecurrency 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 currencyinfluence. A mismatch between monetary capability and currency

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influence is a sign that a country is transitioning to or from a position ofmonetary hegemony. A country that has greater monetary capability thanany other actor, but limited currency influence, is central to commercialand financial markets but not to the system of foreign exchange. Such anactor is either a declining hegemon that can no longer effectively convertmonetary capabilities into currency influence or an aspiring hegemonunable to do the same as effectively as the incumbent power. Conversely,a country with significant currency influence but second-rate monetarycapability is central to the international currency system but not commer-cial and financial markets. Such an actor is either a declining hegemonwith a sustained capacity to convert monetary capabilities into currencyinfluence or an aspiring hegemon capable of transforming capabilities intocurrency 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

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).

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band along the x-axis while the variable under consideration (monetary,military, government debt and currency influence) is measured along they-axis. All countries are assigned a status of Incumbent Power (I), GreatPower (GP), Middle Power (MidP), Small Power (SP), Minor Power(MinP). For each measure, the graphs show the four leading countrieswith over-sized dots according to power status. The size of the dots arebigger for great powers than for middle powers, which in turn are biggerthan 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 athird. The intervals are as follows: PI > PGP > PI/3

1, PI/31 > PMidP > PI/3

2,PI/3

2 > PSP > PI/33, PI/3

3 > PMinP � 0. Thus, great powers command morethan 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 3.7percent.

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 andimports) and capital markets (stock market capitalization and bond issu-ance). Employing Ito and Chinn’s (2013) ranking of countries based on

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

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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; thisstood at 54 countries in 2010; countries receiving the second highest valuerank 55 and so on. According to this measure, the United States andJapan are ranked number 1, the euro-zone 21 (weighed down by Sloveniaand Slovakia) and China 110.1 However, China is taking important stepstowards greater openness through initiatives like the Shanghai free tradezone, liberalization of cross-border capital flows and acceptance of freertrade of the RMB within the zone. Moreover, London— the largest venuefor currency trade in the world — has become a hub for offshore RMBtrades.

Actors falling above the thick blue line possess more than 50 percent ofAmerica’s monetary capabilities. As is clear, the euro-zone is a potentrival with 80 percent of America’s monetary capabilities. China hasapproximately half of America’s monetary capability, Japan 39 percent.Apart from these three entities, one of which is a political coalition, thereis no country, which has more than a quarter of America’s monetarycapability. 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’smilitary capability. Based on the working assumption that an actor mustcommand more than a third of the incumbent’s military capability inorder to qualify as a great power, there are no great powers besides theUnited States in the security sphere. Both China and the euro-zone aremiddle powers. China has just slightly more than 20 percent of America’smilitary 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 5percent of America’s military capability (blue dotted line). Higher relativespending has resulted in an unrivalled military position. Only the UnitedStates ‘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 isoften seen as an ominous sign of dollar decline and the decline of theUnited States (MacDonald and Parent, 2011, Layne, 2012). Before the‘spreadsheet error’ discovered in Reinhart and Rogoff (2009), their workraised fears that government debt to GDP ratios over 90 percent inhibitgrowth and helped fuel dollar skepticism. However, these fiscal chal-lenges would only threaten dollar hegemony if the United States did notissue a sovereign currency and its economy was not so flexible and

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adaptable. Because of the widespread perception that governmentspending is jeopardizing America’s economic position, Figure 3 ranks allcountries’ share of government debt to GDP according to power statusbased on monetary capability. This figure inverts the y-axis, placinglower debt countries higher in the graph than high debt countries. Coun-tries with government debt greater than the size of their economy appearabove the thin dotted line in blue.

Japan is the only great power with government debt greater than thesize of its economy, indeed well over twice the size of its economy at 215percent of GDP. The United States is a distant second with governmentdebt at just one percentage point below 100 percent of GDP. High levelsof government debt can shake confidence in a currency. Sagging demandfor official debt may cause foreigners to anticipate higher interest rates,currency depreciation, or both. But the mechanism invoked whereby theUnited States faces a potential solvency threat is archaic and ceased beingoperative with the breakdown of the Bretton Woods system of fixedexchange rates. The United States runs no risk of becoming insolvent as aresult of growing sovereign debt because the United States does notpledge to convert its currency into any other currency, gold or metal at afixed rate and can therefore issue debt without worrying about runningout 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

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

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face excess interest rates but solvency is not the issue. By contrast, highlevels of sovereign debt within the euro-zone are serious since euro-zonecountries have given up their monetary sovereignty. China’s sovereigndebt is just 34 percent of GDP but this figure is unreliable and likelyunderstates 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 onthe y-axis. The dollar is by far the most widely used currency in theworld, by both private actors in foreign exchange markets and by statesas official reserves. The euro is the second most frequently used currencybut has less than half the reach of the dollar. Japan has very little currencyinfluence — 14 percent relative to the United States. The use of China’scurrency, the renminbi (RMB), in foreign exchange markets is negligible,and the renminbi is not a reserve currency. Since the currencies of severalmiddle powers, and even small powers, have a more prominent rolethan the renminbi, the relationship between currency influence andpower rank breaks down. This imperfect correspondence between cur-rency influence and power rank is not only true for China but for othermiddle, small and minor powers. For example, both Australia and Swit-zerland are small powers in terms of monetary capability but both theAustralian dollar and the Swiss franc have assumed an international role

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

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ahead of middle powers such as Canada or the Netherlands. From thefigure it is also clear that only a handful of currencies (more preciselyseven) have more than 5 percent (see the dotted blue line) of America’scurrency influence whereas more than 20 countries have at least 5 percentof America’s monetary capability (see Figure 1). As I will show, whethermonetary capability translates into currency influence depends on howpower is mobilized.

The preceding empirical analysis confirms the United States’ standingas the monetary hegemon of our time, with vastly greater currency influ-ence than any other actor in the world. The United States is peerless interms 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 standingdoes not mean that the data presented by declinists are incorrect. Rather,the statistics they use to gauge America’s monetary power are flawed byomission. 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, theymisdiagnose 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 monetarycapability or currency influence in any comprehensive way, they areright that the gap in monetary power between America and other GreatPowers is contracting. America’s relative weakening ‘is real’ but no coun-try or coalition of countries comes anywhere close to the United States interms of monetary power, namely, in terms of both monetary capabilityand currency influence. Why is America’s declining monetary capabilitynot eroding dollar influence at a quicker pace? As demonstrated, mone-tary capability does not perfectly map onto currency influence, beggingquestions of how state and private actors are motivated to use a currencyand what the United States can do to promote the use of dollars in theinternational political economy. In the next section, I examine how thedistribution of monetary capability translates into currency influence andhow it prolongs dollar hegemony.

POWER ANALYSIS AND THE DOLLAR

Despite the voluminous literature on the future of the dollar, BenjaminCohen (2013) notes, ‘. . . we really know very little about the specificcausal 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 powerof 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 formsof 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 threefunctions it assumes for official and private actors.

This approach has a number of advantages over other major explanationsfor 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). AsStrange (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 countriesto use their currency.

� A country providing a ‘top’ currency experiences spontaneous use ofits currency by private and official actors for economic reasons.

� A country providing a ‘neutral’ currency is not politically supportedalthough it must meet certain political conditions.

Based on this taxonomy, political factors are understood to be moreprevalent when a currency is ‘master’ or ‘negotiated’ than when it is ‘top’or ‘neutral’ (Helleiner, 2008). The framework is helpful insofar as it offersa simply organized catalogue of various economic and political factorsthat sustain or derail an international currency — still, it suffers fromimportant 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 inmultiple categories, is difficult to assess. For example, the same empiricalobservations are relevant for the direct channels through which politicsaffect the economic determinants of ‘top’ currency status and the indirectchannels 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 extendtrade 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 transnationalnetworks, it therefore does not follow that ‘negotiated’ status ‘refer[s] toany context where a currency’s international role is supported by foreigngovernments for reasons that do not stem from the currency’s inherenteconomic attractiveness’ (Helleiner, 2008: 363). The concept of networkextensiveness is understood to include measures of market size and net-work externalities. Yet, since network externalities are used to explainthe international use of a currency beyond what one might expect by sim-ply looking at economic variables, the extent to which a currency is usedfor underlying economic reasons (i.e., the currency has ‘top’ status) andto 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 remainsunclear. While confidence, liquidity and network extensiveness are sin-gled out by Helleiner (2008) as economic variables determining currencyinfluence, 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 andwhat is political is empirically intractable. Superimposing an additionalset of determinants (market-based, instrumental or geopolitical) to explaininternational currency standing (cf. Helleiner and Kirshner, 2009: 23)compounds the problem. Because of the unclear distinction between thefour categories, this taxonomy cannot be used to show how transitionsbetween various categories occur. This limitation makes the classificationscheme 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 theresult of four pillars of power: production, finance, security and knowl-edge. Due to structural power in these domains, Strange argued that theUnited States can define the rules of the game. Keohane (2000) andVerdun (2000) see this view as tautological (more below). Strange (1988:26) refers to ‘four interacting structures’, but there is very little on howthese issue-areas intersect, closing off interesting possibilities that couldhave 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 andfinancial markets as well as its unrivalled military power is key to under-standing the stability of the American-centered order and the preeminentrole of the dollar in the international political economy. There are threemain components to this argument. In short, American commercial capa-bilities generate favorable investment relationships; financial capabilitiesresult in beneficial commercial dynamics; and military preponderance

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creates advantageous commercial and financial transactions. America’sGlobal Advantage (2010) is not the first account of bargaining dynamicswithin each of these domains but it is the first complete explanation ofhow synergies combine across all these spheres to sustain Americanpower. This framework and the evidence supporting it has gained a greatdeal of traction and has been used by scholars to speculate about thedollar’s future (Stokes, 2013), China-US rivalry (Beckley, 2012) and thewisdom of retrenchment (Brooks et al., 2013). While this research pro-gram offers insight into how economic and political capabilities, as wellas 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) typologydescribing the various roles an international currency must play and toidentify what kind of power is activated when private and official actorsare motivated to use dollars as medium of exchange, unit of account andstore of value. By analyzing all the dimensions of power through the fullset of international currency functions while looking at both official andprivate actors, we can gain a better understanding of what power mecha-nisms uphold dollar hegemony.

THE PERSISTENCE OF DOLLAR HEGEMONY THROUGHDIFFERENT DIMENSIONS OF POWER

The persistence of dollar hegemony is due to America’s overwhelmingmonetary capability and its ability to mobilize capabilities through differ-ent forms of power. Drawing on David Baldwin’s (1980) important insightabout the ‘relative-infungibility’ of power resources, I show how theUnited States uses its multi-dimensional resource base to influence othersin 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 ofpower. Hard power through coercive means, some form of payment (mone-tary or quid pro quo) or soft power (the power of example or attraction) isapplied when exercising these various forms of power (Nye, 2011). Nye’sconcept of soft power (1990, 2002) is challenged by Barnett and Duvall onthe grounds that ‘the capacities of actors to determine the conditions oftheir existence’ (2005: 42) is not at stake when actors voluntarily changepreferences and behavior through persuasion. Barnett and Duvall’s (2005)justification for excluding persuasion as a form of power is unconvincingand leaves out a wide range of instances in which power is exercised. Oneof their reasons for excluding persuasion is that ‘most scholars interestedin power are concerned not simply with how effects are produced, butrather 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 thegrounds 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 ofpower as including a consensual element. They say the United States ‘hasworked 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 thiscase, some form of persuasion is implied.

The first face of power

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

Medium of exchange

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

Unit of account

By threatening, rewarding or persuading countries to choose a strategyother than their preferred one, the American government can preserve orraise private use of dollars as a unit of account. For example, as the singlemost coveted export destination in the world, the United States canthreaten market closure, or promise increased openness, to incite others toopen 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 forinvoicing purposes, that is a as unit of account for private actors. MostAmerican 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 willoccur in the exporter’s home currency, but for different reasons. CitingMagee 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 thatexplanations based on minimizing transaction costs (Niehans, 1969,Krugman, 1980, Chrystal, 1984) are more convincing than ones based oninvoicing in the exporter’s currency. An expansion of American buyingpower in homogenous goods will also tend to increase the dollar’s unitof account function. In this case, exporters have incentives to price inlocal 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 inAmerican imports, we should expect that the net effect of American com-mercial expansion and import penetration is to raise the unit of accountfunction for dollars.

The invoicing, and settlement, of certain commodities such as oil indollars — the so-called ‘petro-dollar’ market — is the immediate result ofbargaining and, as such, a palpable instance of the directed, intentionalinfluence attempts envisaged by David Baldwin (1980). After the collapseof the Bretton Woods system of fixed exchange rates in 1971, the UnitedStates insisted that Saudi Arabia and other Gulf states price oil in dollarsand not accept any other currency in exchange (Spiro, 1999). The bargainwas not purely coercive; there was a quid pro quo in the form of assuredUS military presence. This exchange of dollar support for security bene-fits is reminiscent of the offset agreement under the Bretton Woods fixedexchange rate regime whereby Germany agreed to prop up the dollarprice of gold in order to secure US troops in Germany (Zimmermann,2002).

The United States could put pressure on other governments to adopt thedollar as the official unit of account by providing incentives to track thedollar. One way to achieve this would be to encourage ‘dollarization’—the wholesale adoption of the dollar as medium of exchange, unit ofaccount and store of value — within a local economy so that the dollarwould effectively become the official unit of account.2 In other cases, theUnited States has applied pressure to convince governments to adopt analternative 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 whichcurrency is used by private investors to store value. Although the Ameri-can government has the authority to freeze dollar accounts when theUnited States has jurisdiction over them such actions actually curtailrather than promote dollar use. Besides the immediate effect of reducingdollar use, arbitrarily freezing private dollar accounts has the long-termeffect 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 Americangovernment could deny investors residing in the United States (muchless foreign investors) the ability to save in non-dollar assets. Contrary totax evasion probes, where the United State is increasingly vigilant it ismuch more complicated to interfere with private decisions about whichcurrency to use for investment purposes.

Although there may have been occasions where US officials havecajoled financial institutions or corporations into holding dollar assets,such influence attempts are the exception rather than the rule and cannotexplain why dollars are held privately worldwide. However, the UnitedStates 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 currencydenominations (Spiro, 1999). As with private assets, the United States canfreeze official dollar accounts in the United States as it has done on anumber of occasions. Mostly recently Nigerian accounts in the UnitedStates were suspended. However, such actions prompt diversificationinto competing currencies, thus limiting rather than expanding dollaruse. The United States has also strong-armed countries to support thedollar’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 byBenjamin Cohen who argued that ‘process power is the ability to gainunder 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 ofpower, and is very close to the more widely-quoted conception offered bySusan Strange, ‘. . . structural power decides outcomes (both positive andnegative) 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 ofthe global political economy . . .’ (1987: 565). This view of structural powerhas been criticized for its circular reasoning (Keohane, 2000). A reviseddefinition of structural power as the creation, revocation or re-formulationof rules in ways that alter the strategies available to other actors whileexpanding one’s own range of strategies addresses this methodologicalproblem. This is consistent with a more general definition which sees stra-tegic framing and agenda-setting by removing, re-ordering or expandingthe set of options from which actors must choose as a form of structuralpower (Bachrach and Baratz, 1962). It is worth emphasizing that the abovedefinition suggests that if one party increases its scope of maneuver rela-tive to another without altering the other’s options it would still haveraised its power relative to them.3 According to this definition, structuralpower is the ability to shape the structure of interaction through rules thatmodify the options of governments and private actors.

One form of structural power spanning all currency functions andactors is the adoption of rules to create an open market for goods andcapital. A liberal economic regime fundamentally alters the preferencesof both private and official actors to use the currency across all the roles acurrency can play. This has important consequences. No matter howmuch China grows relative to the United States, the renminbi cannot out-perform the dollar in terms of currency influence nor can China enjoycurrency autonomy unless some degree of capital account and currencyconvertibility is achieved.

Medium of exchange

The American government encourages private use of dollars as amedium of exchange by creating attractive options for recycling them. Byencouraging other countries to make dollars acceptable, firms are able tospend dollars locally, raising incentives to receive dollars in exchange formerchandise goods. The United States does not have to go all the way toformal dollarization; all it has to do is hype the strength and stability ofthe dollar and persuade governments to make dollars acceptable as par-allel means of payment. For example, even when local currencies havenot 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 Americancapital markets. By introducing legislation, including lax regulations, theAmerican government has promoted the growth and development offinancial markets in the United States.

As with the first face of power, there is no incentive for the UnitedStates 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 thecurrency with the greatest market impact (see above).

Unit of account

Endorsing the expansion of financial markets can also raise the dollar’sunit of account function for private investors. Foreign firms are morewilling to accept dollar invoicing and settlement if they can recycle thecurrency in future transactions. If they cannot use the currency to settleother trade contracts, invest, or otherwise spend money, they will haveto switch in and out of the currency. This process is potentially verycostly. As discussed in the previous section, leaning on governments toaccept dollars domestically makes dollar invoicing more attractivebecause it allows foreign firms to spend dollar earnings locally. Morebroadly, extending commercial links with other countries raises incen-tives to invoice in dollars. One example of how the United States hasmaintained and increased its commercial reach through strategicsequencing (cf. Lax and Sebenius, 1991) is the ‘single-undertaking’approach, which was introduced at the close of the Uruguay Round. Inorder to persuade countries to accept the Final Act establishing the WTO(World Trade Organization), the United States took GATT (GeneralAgreements on Tariff and Trade) off the table by retiring from it, leavingthose with membership aspirations little choice but to accept the morecontroversial aspects of the WTO such as intellectual property rights(Steinberg, 2002: 357–60). The American government knew that withoutthe participation of the United States and the European Union, GATTmembership was unattractive and ‘. . .succeed[ed] in removing this statusquo from the choice sets of the loser’ (Gruber, 2001).

American campaigns promoting dollarization — including statementsextolling 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 JohnSnow’s mantra —’it’s always the same policy; our policy is the strongdollar’— 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 launchingcampaigns in support of their own currency and/or to reverse dollariza-tion. As Juliet Johnson (2008: 381) has demonstrated, ‘Russia’s officialanti-dollar campaign kicked off in April 2006 . . . and . . . introduced legis-lation [to] . . . ban the use of dollars in public speeches and in domesticpricing. Newspaper stories and public events decrying the dollar andpromoting 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 ithas some leverage over where private investors eventually store valuethrough the second face of power. As mentioned earlier, by making andrevoking rules and regulations, the American government can create apermissive environment within which financial institutions are empow-ered to increase the range and sophistication of investment vehicles fromwhich investors can choose. By shaping the options available to privateactors, the United States exerts influence over how non-state actors inter-act with each other and how they interact with other states, as SusanStrange (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 Treasurydepartment made it possible for Gulf states to diversify into governmentbonds without going through regular auctions (Spiro, 1999). This made iteasier (as compared to competitive and non-competitive auctions) toadjust the size of the order and negotiate rates and yields. So, even in thecase of official reserve holdings, it is easier for the American governmentto facilitate investment in dollar denominated assets than to impedeinvestments 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’sresilience as the world’s first currency. This form of power socializesstates and non-state actors into supporting the dollar by affecting percep-tions about the United States and the dollar. Empirically, this face ofpower is hard to study because it does not leave a trace. There are certainbroad actions the United States can take to create a context where USpreferences are understood and others adapt to them. However, thesilent consensus in support of American power and the dollar does notrequire specific action. The process whereby individuals and groupsinternalize US options is therefore much harder to observe. Often thesesocial 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 statesaround a liberal agenda endorsing open cross-border flows of goods and

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capital. Through the World Trade Organization, the World Bank, IMFand Bank for International Settlements, there are regular opportunitiesfor states to interact, for the United States to voice its preferences, and forothers to come on board. Once American preferences are revealed, groupdynamics often endorse them because voicing public opposition is costlywhile voicing public support is beneficial.

Explaining how group behavior transforms into general support forthe dollar is easier to understand in terms of inter-state interactions thanin terms of private interactions. Countless individual decisions influencethe fate of the dollar, but these decisions are entirely decentralized andthere 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 formof socializing process, beliefs about the United States and the dollar affectthe 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 thenature and future of American power are partly fact and fiction. Once acritical mass believes the United States has the wherewithal to continuesupplying the world’s first currency, network externalities, (i.e. the utilityof using a currency because everyone else is using it) kick in to reinforcethe logic of continued dollar use. Since dollars are the most widelyaccepted means of international payment today, it is difficult to avoidtransacting in dollars, even if one is willing to incur a cost for using rivalcurrencies. As emphasized before, when official actors choose which cur-rency to use as medium of exchange they select the intervention currencythat maximizes market impact.

Unit of account

Since the United States has been the leading economy and military powersince the end of World War II, and also has had the largest product andfinancial market, invoicing and settlement of trade in dollars has seemedobvious. It is not that firms who accept dollar invoicing necessarily do sobecause they are daunted by American power, but rather that the systemis such that it is taken for granted that exchanging goods for dollars andrecycling the proceeds in dollar denominated securities is standard pro-cedure. Challenging how things work is too cumbersome and potentiallycostly. This form of power is passive and unintentional and gives rise towhat Jacques Rueff (1972) called the ‘deficit without tears’ and what JerryCohen (2006, 2013) calls the ‘power to defer and deflect adjustment’. It ispernicious because it is unrelated to anything the United States does atthe time when the constraints are being felt. The thrust of Americanpower 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 theinternational hierarchy. When governments track the dollar as unit ofaccount, they are not only tracking the stability of the American econ-omy, they are attempting to secure their economic fate by connecting tothe world’s number one power. As time passes, governments anchoringto the dollar develop a vested interest in the stability of its value and thestability 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 tothe range of financial instruments on offer, providing opportunities tosave over different time horizons and at different levels of risk. The polit-ical clout of an actor can also influence subjective beliefs about whether acurrency 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 agood way to store value, the United States is considered safe because it iseconomically and politically powerful. A country that is able to signalstrict monetary policies by creating and reforming domestic institutionsis particularly well-suited for currency leadership (Walter, 2006). Acapacity for political coercion can also support a currency’s standing byenhancing the perceived stability and safety of investments (Norrlof,2010). Official actors also store value in dollar denominated securities toa greater extent than they do in any other currency. Official reserves aremostly 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 thatbelieve in the appeal and continuation of American power.

CONCLUSION

Predictions of weakening dollar hegemony are common, and have comeand gone before. Conventional wisdom anticipates a multipolar currencyorder. Indeed, some believe it is already here. These forecasts are basedon eroding American capability. The most common evidence cited forsuch a shift is relative economic strength as measured by a country’sshare of world GDP, as well as its GDP growth trajectory. But GDP is justone 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 tradeand capital markets) as well as other variables relevant for assessing thepotential for currency influence, such as military power and financial

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openness. America’s gathering public debt is also seen as contributing tocurrency 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 dollarhegemony is built on faulty premises.

While repeatedly predicting that dollar hegemony will end is effectivebecause it is unlikely that dollar hegemony will last forever, any compel-ling prediction of how it will end must begin with what sustains it. Mysecond contribution is to offer a comprehensive assessment of how differ-ent power mechanisms have sustained dollar hegemony. My analysisconnects monetary capabilities with currency hegemony through a com-prehensive evaluation of relative currency influence, that is the extent towhich national currencies are used internationally in official and privatemarkets. By examining how different channels of power motivate privateand official actors to use dollars as a medium of exchange, unit ofaccount, and store of value, I clarify the opportunities and constraints theUnited States faces when promoting dollar use. This provides a richerexplanation of dollar hegemony than accounts based on incumbencyadvantage, inertia or network externalities. Focusing on examples wheremonetary capabilities are actively mobilized or work passively throughrule-making, framing attempts, or socialization to alter options for usingcompeting currencies gives further specificity to Benjamin Cohen’s andSusan Strange’s insight that America’s structural power is an importantcomponent of dollar hegemony. An investigation of the various pathsthrough which the United States projects power over private and officialactors highlights the distinct functions currencies play and how theUnited States exerts influence over the interaction between private actorsand their interactions with states. This framework is sufficiently flexibleto incorporate one of the most important expressions of monetary poweremphasized by Cohen: the autonomy to ‘defer and deflect balance of pay-ments adjustment’. Finally, quite differently from accounts based onSusan Strange’s currency status perspective, this approach is able toexplain the long cycle of dollar hegemony by tracing how the UnitedStates has converted monetary capabilities into currency influence in away 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 currenciesrise and fall.

ACKNOWLEDGEMENTS

I would like to thank the editors, three anonymous reviewers, JerryCohen 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 theUniversity of Toronto, Canada. She is the author of America’s Global Advantage:US Hegemony and International Cooperation published by Cambridge UniversityPress (2010).

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Baldwin, David A. (1980) ‘Interdependence and Power: A Conceptual Analysis’,International Organization, 34(4): 471–506.

Baldwin, David A. (2013) Power and International Relations, in Walter Carlsnaes,Thomas Risse and Beth A. Simmons (eds) Handbook of International Relations,Thousand Oaks, CA: SAGE Publications.

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