U.S. economic power had in turn been built on the durability of the U.S. dollar and the dollar's status as the world's de facto currency. Even the costs of the Vietnam War, which forced the U.S. off the gold standard, did not affect the status of the dollar as the global reserve currency,3 nor did it affect the United States' status as the world's lender of last resort.4 This status allowed the U.S. to essentially dictate policies to the World Bank,5 only the most obvious instance of U.S. financial power allowing the U.S. to influence the world with "soft power". U.S. economic power also had other more subtle influences on trading partners, influence, which could always be backed up with trade sanctions,6 asset freezing,7 and ultimately, military power.
Perhaps the most important aspect of the dollar's status as the world's de facto currency was the denomination of oil contracts in dollars.8 Until recently,9 all purchases and sales of oil were denominated in dollars. This meant that the U.S. could, if necessary, alter the real price of oil simply by currency and lending manipulations. It also meant a higher than ordinary demand for U.S. dollars. That era is coming to an end.
The rise of the European Union created a second possible global reserve currency and banking institution. The Euro and the European Central Bank are modeled to some extent on the German Mark and Bundesbank. The Deutsche Mark in the post-war era, was influenced by these factors:
1) the horrific experiences of the Weimar hyperinflation10 which was a major contributor to the great depression in Germany
2) The debt and depression of the Weimar republic. The great depression in Germany, prior to Hitler was worst in the industrialized world due to hyperinflation resulting from the reparations payments to France and Britain, payments used in turn to repay war loans made from the U.S. to those two countries, a chain of default and depression leading to global war.
3) the global war which resulted from the great depression..
4) In the post war era, U.S. theories of monetary policy.
Literally all legal and political institutions established after the war were built around the idea of preventing another great depression and world war. The happy news of this brief is that all of those institutions are intact and functioning. Despite the world's worst recession since 1929 there is simply no risk of a global war, even with modernizing Russia or China or India: the world is, in that sense, on track for a century of continued constant economic growth.
The good news for the world, however, is not necessarily good news for the United States. Just as the war in Vietnam ended the gold standard, so the wars in Southwest Asia will end the dollar's status as global reserve currency. The Arab world is shifting toward alternatives to the dollar for denomination of oil contracts. Likely, the world will shift to a diarchic system of two key currencies, the Euro and the Dollar. This may actually be a good thing for global stability. U.S. unilateralism led the U.S. into unpopular, expensive, and ultimately self-destructive wars. The United States is dependent on imported oil, and has been for thirty years. Rather than responding to the oil crises of 1974 and 1979 with policies of energy independence, U.S. foreign policy profited from oil fluctuations resulting from the decade-long Iran-Iraq war, the wars in Iraq, and the sanctions system. Meanwhile, environmentally superior energy sources such as electricity and wind power have since improved. The U.S. will shift to those sources, now out of necessity rather than by choice. Hopefully, there will be fewer oil wars as a result.
Despite the United States' historic blunders, however, the U.S. does retain some semblances of global financial power. For example:
Of these strengths, massive immigration has grown the United States from 200 million people in 1980 to 300 million today. This represents a massive productive force. Further, immigration to the first world stabilizes the third world indirectly because immigrants often remit their payments to the third world. This in turn leads to increased trade between the first world and the third world. If the world has understood how to avoid global depression and global war as a result of the hard experiences of the two world wars, the real challenge for internationalists today is to extend this global peace from the first world to the third world, not through invasions and "democratization" or "nation building" to impose western culture, and gender roles, but rather, through commerce. Commerce binds countries and makes war self destructive. Further, commerce leads to prosperity obviating war entirely. In these senses, the World Trade Organization is a great engine for world peace.11
The fourth point is hardest: the U.S. has a universalizing ideology of human freedom and equality of all; in other words, it has a commitment to the rule of law. That ideology was taken up in France, then Britain, then Germany and now is a part of the collective values of the entire first world. However, ten years of lawless unilateralism and blindness have led the U.S. to betray its own values. Invasions of whole countries, in what must look to others like an oil grab; torture of prisoners at Abu Ghraib; as well as secret prisons, abductions, and assassinations, have all became parts of what seems like an American crusade against an entire culture it barely understands. Such unilateral actions have alienated U.S. allies12 and infuriated neutral bystanders driving many in the third world who would otherwise support the United States, or at least be neutral, into the arms of terrorist criminals. The failed metaphor of "war" against a non-state actor has led the U.S. to squander its wealth and youth in incoherent wars that have no end in sight. The U.S. can literally no longer afford unilateralism. Given the U.S. abuse of global hegemony we can in a sense be thankful that the world is now once again pluralist and multi-polar. The challenge for U.S. policy makers is to articulate coherent sustainable effective policies to conclude the failed wars and to manage interdependence: happily, all of the institutions established after the Second World War by the U.S. and its allies are in place and have worked. The U.S. must simply embrace them.
1 See, e.g., Daniel I. Fisher, "Super Jumbo" Problem: Boeing, Airbus, and the Battle for the Geopolitical Future, 35 Vand. J. Transnat'l L. 865, 869 (2002) ("In the post-World War II world, nearly all conflicts between European and U.S. foreign policy ideas have been resolved in favor of the United States.").
2 Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 352-59 (1989).
3 "[T]he United States Dollar has served as the global reserve currency. This has given the United States enormous power and special privileges, which it has been using ever since to advance its own interests; it has given the United States the power to manage the global economy, establish the rules, dominate the [International Monetary Fund] in which an 85% vote is required for action to be taken and with 17.5% of the votes the United States can effectively veto any action, and on that basis the United States dominates and practically owns the [International Monetary Fund], they have the last word and have achieved the imposition of the global economic order which we now must suffer." Larry Catá Backer, Ideologies of Globalization and Sovereign Debt: Cuba and the IMF, 24 Penn St. Int'l L. Rev. 497, 529 (2006) (internal citation and quotation marks omitted).
4 Amy Youngblood Avitable, Saving the World One Currency at a Time: Implementing the Tobin Tax, 80 Wash. U. L.Q. 391, 391 n.4 (2002).
5 "The President of the World Bank, Robert B. Zoellick, chairs meetings of the Boards of Directors and is responsible for overall management of the Bank. By tradition, the Bank president is a U.S. national and is nominated by the United States, the Bank's largest shareholder. The President is elected by the Board of Governors for a five-year, renewable term." World Bank, About Us, available at http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20040580~menuPK:1696997~pagePK:51123644~piPK:329829~theSitePK:29708,00.html (last visited ** March 30, 2010).
6 See, e.g., U.S. Dept. of Treasury, Office of Foreign Asset Control, Sanctions Program Summaries, available at http://www.ustreas.gov/offices/enforcement/ofac/programs/ (last visited ** March 30, 2010)
7 See, e.g., Executive Order 12170--Blocking Iranian Government property,44 FR 65729, 3 CFR, 1979 Comp., p. 457 (1979) available at http://www.archives.gov/federal-register/codification/executive-order/12170.html (last visited ** March 30, 2010).
8 "A few years ago Iraq started selling its oil in Euros instead of U.S. dollars, resulting in the rise of the Euro against the dollar." Sophie Clavier, Contrasting Perspectives on Preemptive Strike: The United States, France, and the War on Terror, 58 Me. L. Rev. 566, 582 (2006). See also Alan W. Cafruny, A Ruined Fortress? Europe and American Economic Hegemony, 9 CONN. J. Int'l L. 329, 333 (2004) ("The possibility that the oil pricing system might be shifting towards the euro appears to have been foreclosed by the invasion of Iraq")..
9 Robert Fisk The Demise of the Dollar The Independent, Tuesday, 6 October 2009 http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html ("In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading").
10 Timothy A. Canova, Financial Liberalization, International Monetary Dis/order, and the Neoliberal State, 15 Am. U. Int'l L. Rev. 1279, 1297 (2000)
11 See Eugene Kontorovich, The Arab League Boycott And WTO Accession: Can Foreign Policy Excuse Discriminatory Sanctions?, 4Chi. J. Int'l L. 283, 286 (2003)("[T]he free trade system was designed to promote not just prosperity but peaceful and amicable relations between Member States . . .").
12 Alan W. Cafruny, A Ruined Fortress? Europe and American Economic Hegemony, 19 Conn. J. Int'l L. 329, 329 (2004).