A 100 Years of Dollar Hegemony

The essence of monetary hegemony is the power of one monetary authority to influence monetary conditions outside its jurisdiction. Such power did not exist under the gold standard but came into existence for the U.S. Federal Reserve in the aftermath of the First World War. The basis of that power was the massive drain of gold out of Europe into the U.S. during its period of neutrality and the scope for the newly created Federal Reserve to pursue a discretionary monetary policy with specific aims such as stable prices, rapid recovery from recession, and countering pullbacks in the equity market. Throughout its 100-year exercise of monetary hegemony, the U.S. has used this in ways that have spread inflation around the globe, both goods inflation and asset inflation. Both the U.S. and the rest of the world would have benefited from a U.S. monetary hegemon based on sound money principle rather than on inflationary finance.