The US Dollar’s Continuing Hegemony as an International Currency: A Double Matrix Analysis

The standard framework for debating the international currency system gives space to doubts about the dollar’s continuing hegemonic position because it gives space to doubts about the US’ ability to finance its external liabilities in the face of worsening economic fundamentals. This paper closes down these openings by adding to the usual matrix linking money’s international functions to two different types of agents, private and official, a second matrix linking money’s functions to two different types of commodities, material goods and services on the one hand and financial securities on the other. Once it is understood that bonds and equities are now not only types of funding instrument but also types of commodity whose use values to the world’s large investors are to serve as stores of value, it is then possible to understand why the huge size of the US capital markets will long continue to bind foreign investors to the dollar because it will be long before other capital markets will reach a comparable size.