Why the dollar reigns supreme

When it comes to the global financial system, you can’t really beat the dollar. It’s the dominant global reserve currency, making up over half of the foreign reserves held by central banks around the world. But how did the dollar become so important?

While you could say it goes back to the 1944 Bretton Woods Conference, the answer might predate that. In his new book, “The Almighty Dollar: 500 Years of the World’s Most Powerful Money,” journalist and financial history academic Brendan Greely suggests the dollar’s rise is partially due to the philosophy of money and also the history of the American banking system.

“To understand why American bank dollars had value, we have to go back a little farther [than Bretton Woods],” said Greeley. “We had banking panics every 15 years or so in the 19th century. After each one of these banking panics, we end up with regulation.”

A century of banking problems gave rise to a resilient banking system that proved attractive to foreign banks, making the dollar a crucial part of global trade even before 1944.

The following is a transcript from Greeley’s book looking at the political dominance of the dollar. Greeley also spoke with “Marketplace” host Kai Ryssdal about his work. To listen to their interview, use the media player above.

I went to Jackson Hole in 2019 as a correspondent for the Financial Times. There were only two central bankers who took the public walk together that year: Mark Carney, governor of the Bank of England, and Jay Powell, chairman of the Federal Reserve. They both wore suits. Carney wore tennis shoes. They pointed at Mount Moran. They did not appear to be panicked. And in what’s become a standard part of the pageant, on Friday morning Powell gave a policy speech in the Explorers Room.

Central bankers place great value on communication. Their speeches are hard to parse, ambiguous even if you know what to look for. But each one is a ritual, staged well in advance. When policymakers at major central banks speak, their staff release a copy an hour ahead of time under heavy embargo to a few journalists at major papers, who frantically write a story that will publish at the exact same time as the speech begins.

I got my early copy and picked over it with my editors for news. There was little. For almost a year, businesses had been holding off on making big decisions as they waited for the United States to reach a trade agreement with China. But trade policy, Powell said in his speech, “was the business of Congress and the administration, not that of the Fed.” He didn’t indicate that the Fed had planned any changes in monetary policy that might encourage or discourage American banks from making loans. I finished my news story, my editors published, and Jay Powell began to read his speech to the lodge. The rest of us waited for what we knew was coming.

“As usual, the Fed did NOTHING!” This just under an hour later on Twitter, from the president of the United States. “It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work ‘brilliantly’ with both, and the U.S. will do great.”

“My only question is,” he followed, “who is our bigger enemy, Jay Powell or Chairman Xi?”

Donald Trump spent a fair amount of time in his first term as president yelling about the Fed in general and often Powell in particular. He has sharpened those attacks in his second term, claiming in August 2025 to have fired the economist Lisa Cook from the Fed’s Board of Governors to free up a seat for his own pick. It is an accepted norm in Washington that the Federal Reserve is both independent and apolitical. It’s not supposed to answer to any political party, or help anyone in particular. Trump continues to violate that norm, but it’s just one in a long list of violations.

I was struck, covering the Fed during some of the Trump years, at how much he knew about banks, lending, and the Fed. He had to. He had been borrowing huge amounts of money his entire life. He knew that the Fed had some ability to encourage banks to lend, and as president he wanted more lending; more lending can help more businesses expand, which can create more jobs. But you don’t have to agree with Donald Trump to see that money is inherently political.

We still live in Carlo Cipolla’s world of big money and little money, where different kinds of new bank loans move dollars to different kinds of people. Just as it was a bad business for medieval mints to make petty coins, it’s bad business for banks now to make small-dollar loans. Banks, like mints, tend to favor big money, and for the same reasons. And every time the Fed acts to encourage or discourage lending, its tools help some banks more than others, some loans more than others, some people more than others. Central bankers tend to look down on politicians of all parties as irresponsible spendthrifts, itching for more lending and willing to risk inflation. Trump, in his abusive way, was calling the Fed’s bluff. He knew that central bankers themselves are in the trade of highly political decisions.

After lunch at the lodge in the Grizzly Room it was Mark Carney’s turn to talk. He was leaving his job as governor of the Bank of England, and he said the kinds of things you can only say when you’re on your way out. The problem, he said, was the dollar. It was too strong, too ubiquitous, and too many people in too many countries relied on it. Old theories die slowly. Everyone in the room was familiar with the academic literature on how powerful the dollar had become. Several people sitting there drinking coffee had their names on that literature. But it was time, Carney said, to move on from a couple of old assumptions: that countries control their own money; that everyone makes adjustments on their own; that everything kind of works out over time. It was not working out.

Currency theory in the late twentieth century assumed a basic structure. To buy something in another country, you had to buy some of that country’s currency first. If the dollar became more important globally, it was because a lot of people wanted to buy from Americans or in America. This seems straightforward, and it makes sense. If you fly from Washington to Frankfurt, you hand over your dollar cash at the airport for cash euros. Or if more people want to buy things in or from Ger-many, more people want bank deposits in euros, and the euro becomes more valuable. But that’s not what really happens.

When a company in Brazil imports something from anywhere else in the world, there’s close to a 90 percent probability that it will write out the purchase order not in Brazilian reals but in dollars. Most in-voices in global trade are written in just a few vehicle currencies that carry value from one country to another—yen, yuan, euro, pound. But the only vehicle currency that matters is the dollar. The old theories assumed that companies simply wrote out invoices in their own domestic currencies. But work by a few economists who were right there in the Grizzly Room at Jackson Hole shows that companies make clear, rational decisions about how to invoice. Importers and exporters want stable, predictable prices. When they all invoice in dollars, prices are sticky; they don’t change.

In the old currency theories, global use of a country’s currency was proportional to the size of its international trade. Big exporters had big global currencies. But companies actually invoice in dollars wildly out of proportion with the size of America’s trade. As Carney pointed out, even as America’s role in global trade had dropped, the dollar’s importance had risen. This is also true for central bankers. Foreign central banks hold far higher proportions of dollars as reserves than their trade with America would predict. And it’s true in finance as well. When non-American companies and countries borrow abroad, it doesn’t matter where they are, or whom they’re borrowing from; they almost always borrow in dollars. Economists now refer to the disproportionate use of dollars as the dominant currency paradigm. Note that the country isn’t dominant. The currency is.

Excerpted from “THE ALMIGHTY DOLLAR: 500 Years of the World’s Most Powerful Money” by Brendan Greeley. Copyright © 2026 by Brendan Greeley. Published in the United States by Crown Currency, an imprint of the Crown Publishing Group, a division of Penguin Random House LLC.