Is the dollar this era’s denarius? The greenback’s dominance seems in terminal decline

Subscribe to enjoy similar stories.As the economic consequences of US President Donald Trump’s war against Iran become evident, policymakers around the world are running out of patience. The recent Spring Meetings of the International Monetary Fund and World Bank in Washington made this abundantly clear, with UK Chancellor of the Exchequer Rachel Reeves lamenting the “folly” of a war that is “not ours.”But much of the cost will be borne by the US itself. The immediate effects are visible: a sharp rise in gas prices, inflation climbing to a two-year high and growing concerns that, as consumers cut back on spending to offset higher costs, unemployment will rise.

While these short-term shocks are serious, a major risk that has received less attention is that the dollar could lose its status as the world’s primary trade and reserve currency. The decline of a reserve currency is a slow process. The British pound ceded its dominance to the US dollar over roughly two decades, beginning in the 1920s.

As Barry Eichengreen has noted, the Roman denarius—arguably the world’s first international currency—also unravelled over a long period, starting when Emperor Nero debased it in the first century CE.Any international currency ultimately depends on trust. I witnessed this during my time as chief economic advisor to the Indian government under prime minister Manmohan Singh. On 5 August 2011, Standard and Poor’s downgraded the US long-term credit rating from AAA to AA+, fuelling fears of immediate capital flight.