3. Almost Two-Thirds of International Debt Held Outside the US Must be Paid in Dollars
In 2018, 63% of international debt was denominated in dollars (to be paid in dollars), a percent that has been slowly rising since 2005. The second most common currency owed for international debt is the euro, at about 23%. [5]
There is $28 trillion worth of debt, to be paid in dollars, held by governments and private business outside the US. This is said to increase $1.6 trillion to $2 trillion a year. Foreign countries actually issued $11 trillion of this $28 trillion debt in the US currency rather than their own.
Third World government debt was the equivalent of 15 trillion in dollar terms. About 70% of this Third World debt is actually issued and owed in US dollars. This debt in dollars held abroad further serves to entrench the dollar as the world sovereign currency.
4. Foreign Exchange Trading Dominated by the Dollar
Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, trading, or tourism. The Foreign Exchange market has an estimated turnover of $6.6 trillion a day. In 2019, 88% of the world's foreign exchange trading involves exchanging some currency with one in particular, the US dollar. The euro ranked second with 32%, Japanese yen third at 17%. Chinese RMB ranked eighth at 4%. The dollar's hold in this measure of the world's most dependable currency remains the same as in 2004, while the euro, yen and British pound have tended to decline. [6]
5. Most Foreign Currencies Rotate around the Dollar
While the US dollar ceased to be pegged to the price of gold, it continued as the monetary standard for other currencies, which revolve around the value of the dollar. At least 155 countries either directly peg their currency to the dollar, use the dollar as their own currency, or keep their currency in a tight trading range relative to the dollar. [7] That constitutes just under 80% of the nations of the world. This means the quantity of dollars the US puts into circulation shapes to varying degrees the monetary policy of most other states. To maintain this relation to the dollar other states must keep a sufficient supply of them, undermining any sovereignty their currency may possess. Nations that peg their currencies to the dollar typically rely on exports to the US. Their companies receive payment in dollars from the US market, which they then normally exchange with their own governments for their national currency.
The US Dollar Dominates the World Trade System
In spite of the US losing the status it held after World War II as workshop of the world, the dollar still exercises control over the world economy. It is the primary currency used in world trade; it is the main currency held in national central bank reserves; it is the currency used for just under two-thirds of all international debt; close to all exchange of world currencies involves one currency's exchange for the dollar; most currencies' exchange value is heavily influenced by the value of the dollar. Because foreign nations conduct trade in dollars and have debts in dollars, they are dependent on the dollar and the value of the dollar. This seriously compromises any sovereign power they possess.
Consequently, only in the dollar can we find a currency that meets the MMT conditions for being sovereign. All other countries must rely on the dollar to function, particularly for trade, although the degree of this dependency varies, with the subordinate First World powers exercising more independence than Third World nations. The present set-up of the world economy insures that another currency will not become sovereign like the US dollar. Therefore, the key importance MMT attaches to sovereign currency as a tool for national development loses value given these economic realities.
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