World War I significantly contributed to the rise of the US dollar as a key global currency.
Before the war, the British pound sterling was the dominant international currency, serving as the main reserve currency and medium of exchange worldwide. However, the devastation caused by WWI led to economic instability in Europe, especially in Britain and France, which reduced confidence in their currencies.
Meanwhile, the US economy experienced rapid growth during the war, becoming a major lender and supplier of goods to wartime allies in Europe. This shift increased global reliance on the US dollar as countries and investors held more reserves in dollars due to the size and stability of the US economy, and its dynamic financial markets.
Although the London Monetary and Economic Conference of 1933 impacted negatively on the dollar strength, the Bretton Woods Agreement of 1944 officially established the US dollar as the world's primary reserve currency, linked to gold.
This privileged status of the dollar endowed the United States with quite unique economic advantages—such as the ability to borrow cheaply, repay its international debts with its own currency and exert outsized influence on international finance and geopolitics.
Yet the dollar’s supremacy has never gone unchallenged.
For nearly a century, policymakers, economists, and political leaders across the world have questioned the sustainability and fairness of a system so heavily reliant on one nation’s currency.
This book traces that long and complex story, from the early visionary ideas of John Maynard Keynes in the 1930s, through the postwar Bretton Woods system and the related Triffin's Dilemma, to contemporary challenges posed by regional currencies, such as the euro, digital innovations, like for instance the bitcoin, and emerging economic powers - in particular the enlarging BRICS.
Contents
Summary
Introduction
Chapter 1: Keynes in the 1930s – A Vision Beyond Gold
1.1 The Gold Standard and Its Collapse
1.2 The Case for a Managed System
1.3 The International Clearing Union and the Bancor
1.4 A Radical Departure
1.5 Reception and Legacy
Chapter 2: Bretton Woods, Keynes and the Bancor
2.1 The End of War, the Start of a New Order
2.2 Keynes’s Vision: The Bancor and the International Clearing Union
2.3 The U.S. Position: White’s Dollar-Centric Framework
2.4 The Defeat of the Bancor
2.5 The Bretton Woods Compromise
2.6 Aftermath
Chapter 3: De Gaulle and the Dollar – A Sovereignty Crisis
3.1 The Postwar Dollar Order Consolidates
3.2 A Sovereigntist Challenge
3.3 Gold: The French Alternative
3.4 The Politics of Monetary Power
3.5 A System Under Strain
3.6 Legacy and Historical Impact
3.7 A Precedent for Resistance
Chapter 4: The Eurodollar Market – An Offshore Escape
4.1 The Birth of a Shadow System
4.2 Origins in Cold War Politics
4.3 London's Revival and Deregulation
4.4 A Private System with Public Consequences
4.5 Global Implications
4.6 The Dollar’s Liberation from Geography
Chapter 5: Special Drawing Rights and the Triffin Dilemma
5.1 The Structural Flaw in Bretton Woods
5.2 The Triffin Dilemma: Liquidity vs. Confidence
5.3 Seeking a Solution: The Need for a Neutral Reserve Asset
5.4 The Birth of Special Drawing Rights (SDRs)
5.5 A Timid Response
5.6 The 1971 Shock and Aftermath
Chapter 6: COMECON and the Convertible Ruble
6.1 A Parallel Monetary World
6.2 COMECON’s Economic Vision
6.3 The Transferable Ruble: Function and Fiction
6.4 Limitations of the System
6.5 The Political Economy of Isolation
6.6 Decline and Collapse
Chapter 7: The ECU and the EMS – Europe Seeks Monetary Unity
7.1 The European Question
7.2 The Post-Bretton Woods Environment
7.3 The European Monetary System (EMS)
7.4 The ECU: A Proto-Euro
7.5 Franco-German Leadership and Tensions
7.6 Crises and Adjustments
Chapter 8: The Creation of the Euro – A Monetary Revolution
8.1 The Vision of a Unified Europe
8.2 The Delors Report and the Path to EMU
8.3 The Maastricht Treaty
8.4 Launching the Euro
8.5 The European Central Bank (ECB)
8.6 The Euro’s Global Impact
8.7 The Euro and the Dollar Hegemony
Chapter 9: The Rise of Cryptocurrencies – Disrupting the Monetary Order
9.1 The Digital Frontier
9.2 Bitcoin and the Birth of Cryptocurrency
9.3 Early Enthusiasm and Skepticism
9.4 The Explosion of Altcoins and Tokens
9.5 Governments and Central Banks Respond
9.6 Cryptocurrencies and the International Monetary System
Chapter 10: The BRICS Initiative – A New Monetary Challenge
10.1 The Emergence of BRICS
10.2 Motivations for Monetary Independence
10.3 The New Development Bank and Contingent Reserve Arrangement
10.4 Currency Swap Agreements and Bilateral Trade
10.5 Proposals for a BRICS Currency or Basket
10.6 Geopolitical Implications
10.7 Challenges and Prospects
Conclusion: The Evolution of the International Monetary System
Selected References
Selected Websites
Summary
This book traces the evolving landscape of international money, focusing on the U.S. dollar’s dominant role and the persistent challenges and alternatives that have emerged over nearly a century.
Chapter 1 opens with Keynes in the 1930s/early 1940s, whose visionary proposals for an international central bank/clearing union with a specific supranational currency—the bancor—sought to stabilize international trade and reduce dollar dependence.
Chapter 2 explores the Bretton Woods system, where Keynes’s ideas were only partially adopted, establishing the dollar as the world’s reserve currency backed by gold, and sidelining the bancor.
In Chapter 3, we meet Charles de Gaulle, who famously objected to the dollar’s privileged status, exposing the Triffin dilemma and pushing for monetary alternatives.
Chapter 4 discusses the rise of Eurodollars—U.S. dollar deposits outside America—highlighting how this offshore market began to challenge traditional monetary controls.
Chapter 5 covers the introduction of Special Drawing Rights (SDRs) by the IMF, intended as an international reserve asset, and the related theoretical debates by economists like Robert Triffin about the sustainability of dollar hegemony.
Chapter 6 examines the Comecon’s convertible ruble, the Soviet bloc’s response to dollar hegemony, attempting an alternative reserve currency within its own economic sphere.
In Chapter 7, the focus shifts to Europe’s efforts to unify their currencies through the European Monetary System (EMS) and the European Currency Unit (ECU), crucial steps toward the eventual euro.
Chapter 8 details the creation of the euro, Europe’s groundbreaking single currency, which challenged the dollar’s dominance by fostering economic integration and monetary sovereignty within the eurozone.
Chapter 9 explores the rise of cryptocurrencies, a technological disruption proposing decentralized, digital alternatives to state-backed money, raising questions about the future of monetary sovereignty.
Finally, Chapter 10 analyzes the BRICS initiative, where emerging economies seek to diminish dollar dependence by building new financial institutions, swap arrangements, and potentially a shared currency—signaling a shift toward a more multipolar monetary world.
This narrative reveals a persistent tension: the global economy’s reliance on the dollar versus recurring efforts to create alternatives—driven by political, economic, and technological forces.
Introduction
World War I significantly contributed to the rise of the US dollar as a key global currency. Before the war, the British pound sterling was the dominant international currency, serving as the main reserve currency and medium of exchange worldwide. However, the devastation caused by WWI led to economic instability in Europe, especially in Britain and France, which reduced confidence in their currencies.
Meanwhile, the US economy experienced rapid growth during the war, becoming a major lender and supplier of goods to wartime allies in Europe. This shift increased global reliance on the US dollar as countries and investors held more reserves in dollars due to the size and stability of the US economy, and its dynamic financial markets.
Although the London Monetary and Economic Conference of 1933 impacted negatively on the dollar strength, the Bretton Woods Agreement of 1944 officially established the US dollar as the world's primary reserve currency, linked to gold.
This privileged status of the dollar has endowed the United States with quite unique economic advantages—such as the ability to borrow cheaply and exert outsized influence on international finance and geopolitics.
Yet the dollar’s supremacy has never gone unchallenged.
For nearly a century, policymakers, economists, and political leaders across the world have questioned the sustainability and fairness of a system so heavily reliant on one nation’s currency.
This book traces that long and complex story: from the early visionary ideas of John Maynard Keynes in the 1930s, through the postwar Bretton Woods system, to contemporary challenges posed by regional currencies, digital innovations, and emerging economic powers.
The Foundations of Dollar Dominance and Its Discontents
The story begins amid the economic chaos of the Great Depression. Keynes famously proposed the creation of an International Central Bank and a supranational currency—the bancor—intended to stabilize international trade and provide a more balanced monetary order. However, the WWII context and outcomes – namely new geopolitical realities with the U.S. as the dominant economic power – led instead to a dollar-centered system under the Bretton Woods agreement of 1944, anchoring the dollar to gold and other currencies to the dollar.
The new system permitted to rebuild economies – it also sowed the seeds of future tensions.
In the decades that followed, the Triffin dilemma crystallized a fundamental contradiction: the dollar had to serve both domestic and global needs, but fulfilling international liquidity demands risked undermining confidence in its value. Leaders such as Charles de Gaulle challenged the system, exposing how the dollar’s privileged status allowed the U.S. to finance deficits at the expense of other nations.
Alternative Currencies and Financial Architectures
Europe’s gradual march toward monetary unity—including the European Monetary System (EMS), the European Currency Unit (ECU), and ultimately the euro—represented a collective response to dollar hegemony, offering a regional alternative grounded in political integration. Meanwhile, the Soviet bloc developed the convertible ruble, and the IMF’s Special Drawing Rights (SDRs) sought to provide a more neutral international reserve asset.
Simultaneously, the rise of Eurodollars—U.S. dollars deposited outside the U.S.—reshaped financial markets in ways that outpaced regulatory control from monetary authorities.
The Digital Disruption and Emerging Multipolarity
The 21st century ushered in another wave of transformation. The advent of cryptocurrencies, led by Bitcoin and followed by thousands of digital assets, introduced a new form of money: decentralized, programmable, and independent of nation-states. While still nascent and volatile, these innovations challenge traditional monetary sovereignty and hint at a future where money is reshaped by technology and networks rather than states alone.
At the same time, the rise of the BRICS nations—Brazil, Russia, India, China, and South Africa—reflects a geopolitical and economic push to diversify reserve holdings, reduce dollar dependence, and create alternative financial institutions. Their efforts signal a shift toward a more multipolar international monetary system, where several currencies and centers of power may coexist and compete.
A Story of Power, Sovereignty, and Innovation
This book is not merely a history of currencies and institutions; it is a story about the exercise of economic power, the limits of national sovereignty in a globalized world, and the continuous search for monetary stability. It explores the intricate dance between national interests and collective action, between established powers and rising challengers, and between technological innovation and political constraints.
Through these chapters, readers will gain insight into how the international monetary system has been shaped by crises, negotiations, competing visions, and evolving realities—and how the dollar’s role continues to be questioned in a rapidly changing world.
This work relies mainly on internet resources and previous work we did when writing our M.A. thesis on European monetary integration, under the direction of Professor Alexandre Lamfalussy (Catholic University Louvain, Belgium), former General Manager of the Bank for International Settlements in Basel, and President of the European Monetary Institute, Frankfurt. In addition, we benefited from comments from Professor Robert Triffin, one of the spiritual fathers of the euro.
Chapter 1: Keynes in the 1930s – A Vision Beyond Gold
The 1930s were a time of unprecedented economic collapse, political turmoil, and intellectual transformation.
At the center of this maelstrom stood John Maynard Keynes, the British economist whose ideas would come to redefine modern economic thought. But while Keynes is best remembered for his advocacy of state intervention in domestic economies, less attention is paid to his revolutionary ideas about international monetary reform—ideas that would question the centrality of gold and national currencies, including the future dominance of the U.S. dollar.
1.1 The Gold Standard and Its Collapse
At the dawn of the 20th century, the gold standard was the foundation of the international monetary system. It provided fixed exchange rates, facilitated trade, and promised long-term price stability. But by the 1930s, it had become a straitjacket. The Great Depression, which began in 1929, spread across borders, deepened by countries’ attempts to defend their gold reserves through deflationary policies and high interest rates.
For Keynes, this system was not only economically destructive but intellectually bankrupt. He famously called the gold standard a “barbarous relic.” It forced governments to prioritize maintaining gold parity over economic recovery and full employment, resulting in human suffering and political instability.
1.2 The Case for a Managed System
Keynes argued that the root problem was the lack of an international mechanism to coordinate economic policies. In a gold-based system, countries had no control over their monetary destiny. Surplus countries hoarded gold, while deficit countries were forced to contract their economies. The adjustment burden was asymmetric and unjust.
In response, Keynes began to imagine a new system of international exchange—one that would allow for flexible adjustment, prevent imbalances, and preserve domestic policy autonomy. This would require an international currency not tied to any single nation’s interests.
1.3 The International Clearing Union and the Bancor
By the late 1930s, Keynes was developing a full-fledged proposal: the International Clearing Union (ICU) and its associated global currency, the “bancor.” Under his plan, international trade would be settled through a global clearinghouse, which would keep accounts for each member country.
Each country would have a current account with the ICU, denominated in bancors. Countries with trade surpluses would accumulate bancor credits, while deficit countries would incur debits. However, unlike the gold standard, the system discouraged both persistent surpluses and deficits. Keynes proposed charges on excessive balances to promote equilibrium and cooperation.
The bancor itself would not be held by individuals or used for domestic transactions. Instead, it would be a unit of account for international settlements only, thus avoiding the destabilizing effects of tying domestic monetary policy to international reserve demands.
1.4 A Radical Departure
Keynes’s plan was revolutionary for several reasons:
· It rejected the idea that a national currency (such as the dollar or pound) should serve as the world’s reserve currency.
· It envisioned a rules-based multilateral institution with automatic stabilizers and collective decision-making.
· It placed the burden of adjustment equally on surplus and deficit countries, unlike the gold standard or later dollar-based systems.
· It saw international financial cooperation as essential to lasting peace and prosperity.
In effect, Keynes foresaw many of the global imbalances and currency tensions that would dominate the second half of the 20th century. His proposal was as much about politics as it was about economics—it was a vision of a fairer, more stable global order.
1.5 Reception and Legacy
Though not adopted in his lifetime, Keynes’s ideas were deeply influential. His ICU proposal laid the intellectual groundwork for postwar international institutions, including the International Monetary Fund (IMF), even though the final design deviated significantly from his vision.
In the years that followed, the world would adopt a system based not on the bancor, but on the U.S. dollar, which Keynes had warned against. The consequences of that choice—the asymmetries, the crises, the recurring calls for reform—underscore the prescience of his critique.
Chapter 2: Bretton Woods, Keynes and the Bancor
2.1 The End of War, the Start of a New Order
As World War II drew to a close, the Allied powers faced a daunting task: rebuilding a shattered global economy and preventing the return of the economic nationalism and competitive devaluations that had contributed to the Great Depression and the rise of fascism. The 1944 Monetary and Financial Conference, held in Bretton Woods, New Hampshire, brought together 44 nations to shape a new international monetary and financial order.
Two men stood at the intellectual center of the conference: John Maynard Keynes, representing the United Kingdom, and Harry Dexter White, representing the United States. Their proposals revealed two visions—both committed to multilateralism, but divided on the role of national currencies and how to balance power in the new system.
2.2 Keynes’s Vision: The Bancor and the International Clearing Union
Building on his earlier work from the 1930s, Keynes arrived at Bretton Woods with a specific proposal: the International Clearing Union (ICU), with its own supranational currency, the bancor. The ICU would be a global central bank of sorts, settling payments among countries, maintaining balance-of-payments discipline, and ensuring no single country would dominate the system.
Keynes believed that a neutral international reserve asset would avoid the political and economic imbalances created when a national currency—like the U.S. dollar—served a global function. His system was not only economically rational but also aimed at preserving peace by eliminating unfair advantages and tensions among nations.
2.3 The U.S. Position: White’s Dollar-Centric Framework
Harry Dexter White, reflecting the United States’ wartime economic and geopolitical strength, offered a different design. While supportive of international cooperation, White’s plan centered on using the U.S. dollar as the key global currency, backed by gold. His proposal led to the creation of two new institutions:
1. The International Monetary Fund (IMF) – to provide short-term liquidity and stabilize exchange rates.
2. The International Bank for Reconstruction and Development (IBRD) – later part of the World Bank – to help rebuild war-torn economies.
In White’s framework:
· Exchange rates would be fixed, but adjustable under IMF supervision.
· Countries would contribute to a pool of reserves that the IMF could lend to members facing balance-of-payments problems.
· The U.S. dollar, convertible into gold at $35 per ounce, would serve as the anchor of the system.
Although White agreed that both deficit and surplus countries shared responsibility, there was no enforceable mechanism to compel surplus countries to adjust, unlike Keynes’s bancor model.
2.4 The Defeat of the Bancor
Despite its logic, Keynes’s bancor proposal was rejected. The United Kingdom, weakened by war and deeply indebted to the U.S., had little negotiating leverage. The U.S. controlled two-thirds of the world’s gold reserves and much of its productive capacity. It was the only power capable of underwriting a new financial order.
In July 1944, the conference concluded with the establishment of the Bretton Woods system: a world of fixed exchange rates, capital controls, and dollar-based reserve accumulation, overseen by the newly created IMF and World Bank. The bancor disappeared from official policy, though it lived on as an idea among heterodox economists and global reformers.
2.5 The Bretton Woods Compromise
Though Keynes lost the battle for the bancor, the Bretton Woods system nonetheless bore the marks of his influence:
· It rejected the gold standard’s rigidity.
· It endorsed capital controls to allow governments to pursue full employment.
· It established multilateral institutions to oversee rules-based cooperation.
However, it also cemented the dollar’s role as the central currency of international trade, finance, and reserves. This conferred a significant “exorbitant privilege” on the United States, which could finance its international obligations by issuing its own currency—an advantage Keynes had explicitly warned against.
2.6 Aftermath
The Bretton Woods system would function for less than three decades. Its collapse in 1971, when the U.S. suspended the dollar’s convertibility into gold, ushered in a new, dollar-dominated but unanchored financial era—exactly the kind of scenario Keynes’s bancor was meant to avoid.
Chapter 3: De Gaulle and the Dollar – A Sovereignty Crisis
3.1 The Postwar Dollar Order Consolidates
By the early 1960s, the postwar economic order built at Bretton Woods was functioning—at least on the surface. The U.S. dollar served as the cornerstone of international finance, convertible into gold at $35 per ounce, and trusted globally as the reserve currency for trade and settlement. The International Monetary Fund (IMF) provided a backstop to the system, while global trade flourished under the umbrella of U.S. military and monetary dominance.
But not everyone was content. Beneath the apparent stability, deep asymmetries and tensions were brewing. And no leader voiced this discontent more forcefully than Charles de Gaulle, President of France.
3.2 A Sovereigntist Challenge
For de Gaulle, monetary dependence on the U.S. dollar was a threat to national sovereignty. In his eyes, the Bretton Woods system placed France—and the rest of the world—at the mercy of American policy. The U.S. could finance foreign wars and deficits simply by printing dollars, while other nations had to hold those dollars in reserve to ensure stability—a phenomenon economist Jacques Rueff, de Gaulle’s adviser, called the “deficit without tears,” allowing the U.S. to live beyond its means, while exporting inflation to the rest of the world.
3.3 Gold: The French Alternative
De Gaulle’s response to the dollar's dominance was to return to gold. He viewed gold as the only truly neutral and sovereign asset—immune to political manipulation. France began redeeming its dollar reserves for U.S. gold, shipping bullion across the Atlantic and stockpiling it in the vaults of the Banque de France.
By the late 1960s, the U.S. had issued far more dollars internationally than it had gold to back them. The Bretton Woods system was no longer credible: gold outflows surged, and confidence in dollar convertibility waned.
3.4 The Politics of Monetary Power
De Gaulle’s critique was not just economic—it was deeply political. He believed in a multipolar world, free of American hegemony. To him, the dollar’s role in global finance was a symptom of a broader imbalance in the postwar order, in which Europe’s autonomy had been subordinated to U.S. interests.
His stance aligned with a broader Gaullist foreign policy aimed at asserting France’s independence: withdrawal from NATO’s integrated military command, development of an independent nuclear arsenal, and diplomatic outreach to both East and West.
3.5 A System Under Strain
Despite warnings from France and others, the U.S. continued to run persistent deficits, flooding the world with dollars. The contradiction that Robert Triffin had identified—between the world’s need for dollar liquidity and confidence in its convertibility—was reaching its breaking point.
De Gaulle’s gold conversions became symbolic of a broader unraveling. While France was not the only country redeeming dollars for gold, it was the most explicit and defiant in doing so.
In 1968, the London Gold Pool, a cooperative agreement among central banks to defend the gold price, collapsed. Private demand for gold surged, and official attempts to stabilize the market failed. The two-tier gold market that followed marked a partial retreat from the gold-dollar link—a sign that Bretton Woods was no longer sustainable.
3.6 Legacy and Historical Impact
Though de Gaulle’s actions did not immediately end the Bretton Woods system, they accelerated its demise.
Just a few years later, in August 1971, U.S. President Richard Nixon would unilaterally suspend dollar convertibility into gold, effectively ending the system de Gaulle had railed against.
3.7 A Precedent for Resistance
In hindsight, de Gaulle’s challenge to the dollar was the first serious geopolitical objection to American monetary dominance. It highlighted that an international system built on a national currency would be politically contentious, especially when the issuing country exploited its unique position.
Chapter 4: The Eurodollar Market – An Offshore Escape
4.1 The Birth of a Shadow System
While the world’s attention during the 1950s and 60s was focused on the Bretton Woods institutions and the dollar-gold convertibility, a parallel system quietly emerged—a financial innovation that would reshape global banking and deepen the dollar’s reach, beyond U.S. control. This was the Eurodollar market.
Despite the name, Eurodollars have nothing to do with the euro (which did not yet exist) and not necessarily with Europe. A Eurodollar refers simply to U.S. dollars held in banks outside the United States, especially in Europe. These dollars, while denominated in U.S. currency, are not subject to U.S. banking regulation.
4.2 Origins in Cold War Politics
The Eurodollar market’s origins can be traced in part to the Cold War. In the late 1940s and early 1950s, the Soviet Union and its allies, concerned about the safety of dollar assets held in the U.S., began moving their dollar reserves to European banks, especially in London. By placing their dollars outside U.S. jurisdiction, they sought protection from potential American asset freezes.
Simultaneously, the Marshall Plan and U.S. military spending during the Korean War flooded Europe with dollars, many of which were deposited in local banks.
European institutions, in turn, began lending those dollars to international borrowers, creating a growing offshore dollar credit market.
4.3 London's Revival and Deregulation
London quickly became the epicenter of the Eurodollar market. In the aftermath of the war, the City of London was eager to reclaim its prewar financial prominence, and British authorities were relatively hands-off when it came to offshore transactions.
Unlike American banks, which were constrained by the Federal Reserve’s Regulation Q (limiting interest rates on deposits), London-based banks were free to offer higher returns on dollar deposits and charge market-driven rates on loans. This made the Eurodollar market both attractive and efficient for global investors and borrowers.
What began as a niche segment soon exploded. By the 1960s, billions of dollars were being traded offshore daily. The Eurodollar market effectively decoupled the dollar’s international role from U.S. domestic control—the dollar was no longer just America’s currency; it had become the world’s currency in a literal and regulatory sense.
4.4 A Private System with Public Consequences
The Eurodollar system marked a major shift in international finance. It created a private, unregulated space for cross-border lending, allowing banks to create credit in dollars without holding reserves at the Federal Reserve.
This new offshore system:
· Expanded global liquidity without any official sanction.
· Undermined U.S. monetary control, as dollar supply and interest rates were increasingly shaped offshore.
· Reduced reliance on gold, as private markets created a self-sustaining system of trust and settlement.
At the same time, it made capital increasingly mobile. While Bretton Woods had endorsed capital controls to preserve monetary policy autonomy, the Eurodollar market bypassed those restrictions, laying the groundwork for the liberalization of global finance in the decades to come.
4.5 Global Implications
By the late 1960s and 1970s, the Eurodollar market was not only deep and liquid, but integral to international banking. Corporations, governments, and central banks alike used it for trade finance, investment, and reserves. For countries seeking dollar financing without U.S. political conditions or oversight, it was seen as an alternative.
But the market also carried risks. Because it operated largely outside regulatory frameworks, it was opaque and vulnerable to systemic shocks. The growth of offshore dollar lending complicated central bank policies and introduced new channels of contagion in times of crisis.
4.6 The Dollar’s Liberation from Geography
The most profound implication of the Eurodollar market was that it freed the dollar from national boundaries. It no longer mattered whether dollars were created by the Federal Reserve or by a London bank—they functioned the same way in global finance. This created a de facto international monetary base, not backed by gold or tied to a supranational authority, but by network and multiplier effects.
Chapter 5: Special Drawing Rights and the Triffin Dilemma
5.1 The Structural Flaw in Bretton Woods
By the late 1950s, the cracks in the Bretton Woods system were no longer just theoretical—they were structural. The U.S. dollar, meant to be a stable, gold-convertible anchor for the global monetary system, was being issued in quantities that far exceeded American gold reserves, partly to finance the war in Korea. Yet global trade, reconstruction, and economic growth required more international liquidity—most of it in dollars.
This paradox lay at the heart of what became known as the Triffin Dilemma, named after Belgian-American economist Robert Triffin, whose insights into the contradictions of the Bretton Woods system would prove prophetic.
5.2 The Triffin Dilemma: Liquidity vs. Confidence
In 1960, Triffin published Gold and the Dollar Crisis, in which he argued that the international role of the dollar was inherently unstable – for the U.S. to supply the world with enough dollars to support growing international trade, it had to run persistent balance-of-payments deficits. But those very deficits would erode confidence in the dollar’s value, especially its convertibility into gold.
This created a fatal contradiction:
· If the U.S. stopped running deficits, the world would face a liquidity shortage, strangling growth and trade.
· If the U.S. continued running deficits, confidence in the dollar would collapse, triggering capital flight and a gold crisis.
There was, in Triffin’s words, no escape within the existing framework.
5.3 Seeking a Solution: The Need for a Neutral Reserve Asset
Triffin’s analysis echoed Keynes’s earlier warnings about tying the global monetary system to a national currency. A stable system, Triffin argued, required a supranational reserve asset—one not dependent on the domestic policy of any single country.
By the mid-1960s, this idea gained traction, especially among European nations and some developing countries. The IMF was increasingly seen not just as a crisis lender but as a potential issuer of global liquidity. The question was: how?
5.4 The Birth of Special Drawing Rights (SDRs)
In 1969, in response to mounting pressure, the IMF created the Special Drawing Right (SDR)—a new type of international reserve asset designed to supplement, rather than replace, existing reserves like gold and dollars.
The SDR was not a currency in the traditional sense. Instead, it was:
· A potential claim on the freely usable currencies of IMF members.
· Allocated by the IMF to its member states based on their quotas.
· Backed by the collective agreement of member countries, not by a physical commodity or single nation’s economy.
Initially, SDRs were valued in terms of gold, and later as a basket of major currencies—now including the U.S. dollar, euro, Chinese renminbi, Japanese yen, and British pound.
5.5 A Timid Response
While the SDR marked an important step toward monetary multilateralism, it fell far short of what Triffin or Keynes had envisioned. The reasons were political and structural:
· The United States resisted any measure that would diminish the centrality of the dollar.
· SDR allocations were modest and infrequent, making them a small share of global reserves.
· SDRs remained largely intergovernmental—not usable by individuals, firms, or private banks.
· The SDR system lacked enforcement power or a deep market, unlike the Eurodollar system.
Despite these limitations, SDRs represented the first serious institutional attempt to create an international money not issued by a nation-state. They were a quiet nod to the bancor, though constrained by geopolitics and the enduring dominance of the dollar.
5.6 The 1971 Shock and Aftermath
In August 1971, when President Richard Nixon unilaterally suspended the dollar’s convertibility into gold, he effectively ended the Bretton Woods system.
But instead of triggering a shift to SDRs or a new supranational currency, the result of Nixon decision was a floating exchange rate regime with the U.S. dollar remaining the de facto global currency, now untethered from gold.
Chapter 6: COMECON and the Convertible Ruble
6.1 A Parallel Monetary World
While much of the global monetary discourse in the postwar era centered on the dollar, gold, and Western-led institutions like the IMF and World Bank, a parallel economic universe was taking shape behind the Iron Curtain.
The Council for Mutual Economic Assistance (COMECON)—established in 1949 under Soviet leadership (and pressures, with military presence)—sought to organize economic relations among socialist countries in opposition to the Western capitalist system.
As the Soviet Union and its allies rejected the Bretton Woods order, they faced a key challenge: how to facilitate trade and financial coordination among members without relying on the U.S. dollar or Western financial mechanisms. The solution came in the form of a little-understood instrument: the Transferable Ruble, often referred to as the convertible ruble.
6.2 COMECON’s Economic Vision
COMECON was not simply a mirror of the Western economic system—it operated on central planning principles, collective industrial strategies, and fixed prices. Its core members included the Soviet Union, East Germany, Poland, Czechoslovakia, Hungary, Romania, and Bulgaria, later joined by Cuba, Vietnam, and Mongolia.
In the absence of market-determined exchange rates and convertible currencies, COMECON needed a mechanism for multilateral clearing of accounts. The goal was to support intra-bloc trade without reverting to barter or relying on scarce hard currency reserves.
6.3 The Transferable Ruble: Function and Fiction
In 1964, COMECON introduced the Transferable Ruble (TR) as a unit of account for trade settlements among member states. It was not a physical currency and was not convertible into national currencies or gold. Instead, it was a notional clearing instrument, managed by the International Bank for Economic Cooperation (IBEC) in Moscow.
The TR was intended to facilitate multilateralism and reduce dependence on hard currencies. In theory, it offered monetary autonomy and internal coherence for the Eastern Bloc. In practice, however, it had serious limitations.
6.4 Limitations of the System
Despite its ambitions, the Transferable Ruble system struggled with several structural flaws:
· Artificial exchange rates did not reflect real costs or competitiveness, leading to mispricing and inefficiency.
· Trade was often politically directed, with “planned” flows overriding actual supply and demand.
· The TR lacked any convertibility or external credibility, making it unusable in global markets.
· Persistent imbalances had to be written off or tolerated, as no enforceable discipline mechanism existed.
Moreover, COMECON’s trade remained heavily bilateral despite the multilateral clearing structure.
The Soviet Union, as the dominant economy, often subsidized smaller members via energy exports and lenient trade terms, undermining the idea of balanced reciprocity.
6.5 The Political Economy of Isolation
The Transferable Ruble system wasn’t just a monetary arrangement—it was part of an ideological commitment to economic self-reliance and separation from capitalist mechanisms. The USSR aimed to build a self-contained socialist economy that could rival the West, with its own rules, standards, and infrastructure.
But over time, this insularity became a liability.
COMECON countries increasingly needed Western technology, equipment, and consumer goods, which required hard currency, usually dollars or Deutschmarks. As a result, COMECON economies developed a dual trade orientation: politically managed intra-bloc trade in TRs, and competitive, often debt-driven trade with the West in hard currency.
This tension exposed the inherent contradictions of the system.
While the Transferable Ruble was meant to shield members from Western financial dependency, it could not fulfill the basic functions of a currency—store of value, medium of exchange, and unit of account—outside a tightly controlled framework.
6.6 Decline and Collapse
By the 1980s, the cracks in the COMECON system had deepened. Member states were burdened by inefficiency, stagnation, and rising debt to Western creditors.
The Soviet Union itself was struggling to sustain the subsidies and economic leadership that held the bloc together. Strong opposition to communist rules was also growing in Eastern Europe, especially in Poland with the rise of the trade union Solidarity – known also as Solidarność in Polish language.
In addition, Mikhail Gorbachev’s reforms—Perestroika and Glasnost—brought not just political change but economic uncertainty. As COMECON states moved toward market reforms and opened to Western trade and finance, the Transferable Ruble became increasingly irrelevant.
The Transferable Ruble was finally abandoned. COMECON also dissolved in 1991, marking the end of a major attempt in the 20th century to build a completely separate international monetary system outside the dollar-dominated West.
Chapter 7: The ECU and the EMS – Europe Seeks Monetary Unity
7.1 The European Question
As the Bretton Woods system unraveled in the early 1970s, Western Europe faced a difficult choice. With the U.S. dollar now floating freely and no global anchor to replace it, European economies were increasingly exposed to exchange rate volatility, speculative capital flows, and inflationary shocks—especially during the oil crises of the 1970s.
But the crisis also brought an opportunity. For decades, European integration had been inching forward—from the Treaty of Rome (1957) to the development of a common market. Now, leaders on the continent saw monetary cooperation not just as an economic necessity but as a political project: the next step in building a united Europe.
7.2 The Post-Bretton Woods Environment
After the 1971 collapse of dollar-gold convertibility and the 1973 adoption of floating exchange rates among major currencies, European leaders grew alarmed. The “snake in the tunnel”—an early attempt to limit currency fluctuations within narrow margins—quickly fell apart under speculative pressure.
European policymakers, particularly France and Germany, sought a more robust mechanism to avoid dependence on the volatile U.S. dollar and reduce the economic fragmentation that floated currencies were producing. The U.S.'s growing monetary unilateralism made many in Europe wary of continuing to rely on the dollar as a monetary anchor.
7.3 The European Monetary System (EMS)
Launched in 1979, the EMS was designed to foster monetary stability and integration. Its key features included:
· Exchange Rate Mechanism (ERM): Member currencies were allowed to fluctuate within narrow bands (initially ±2.25%) against a central rate determined in relation to other EMS currencies.
· European Currency Unit (ECU): A composite currency based on a weighted basket of EMS member currencies. The ECU served as a unit of account for settlements and reserve holdings but was not a circulating currency.
· Monetary cooperation and credit facilities: Member central banks were required to intervene in currency markets to maintain exchange rate stability and provide short-term financial support.
The EMS was not a full monetary union, but a stabilization framework aimed at coordinating policies and gradually moving toward deeper integration.
7.4 The ECU: A Proto-Euro
The ECU was the EMS’s most innovative feature. Though not a physical currency, it functioned as:
· A benchmark for exchange rate parities.
· A reserve asset for central banks.
· A denomination tool for European financial instruments, such as ECU-denominated bonds.
The ECU’s value was calculated as a weighted average of member currencies (e.g., German mark, French franc, Italian lira, etc.), adjusted periodically. It created a synthetic, neutral monetary unit within Europe—a step toward reducing dependency on the dollar.
7.5 Franco-German Leadership and Tensions
The EMS was mainly shaped by the Franco-German axis.
France saw the EMS as a way to constrain German monetary dominance and reduce dollar dependence. Germany, with its inflation-averse Bundesbank, agreed only if the system preserved monetary discipline.
In practice, the EMS evolved into a “Deutschmark zone”.
The Bundesbank’s policies—especially its focus on low inflation—effectively set the tone for the entire EMS. Other members had to align their policies to maintain exchange rate stability, limiting their monetary autonomy.
7.6 Crises and Adjustments
The EMS survived several shocks—most notably the 1980s debt crises and periods of dollar volatility—but the most serious test came in the early 1990s. The 1992–1993 ERM crisis saw speculative attacks on several currencies, including the British pound and Italian lira.
George Soros’s famous shorting of the pound forced the UK to exit the ERM entirely, while other currencies were devalued.
Nevertheless, the system held, and the experience only deepened calls for a permanent monetary union with a shared currency and centralized monetary policy.
Chapter 8: The Creation of the Euro – A Monetary Revolution
8.1 The Vision of a Unified Europe
The idea of a single European currency was not born overnight. It was the culmination of decades of political ambition, economic necessity, and lessons learned from earlier attempts at monetary cooperation.
The European Communities had evolved into a complex economic bloc by the late 1980s. The Single Market program, launched in 1986, aimed to remove barriers to trade, capital, and labor across member states. But without a unified currency, exchange rate volatility and transaction costs still hampered deeper integration.
A single currency promised to:
· Eliminate exchange rate uncertainty.
· Facilitate cross-border trade and investment.
· Strengthen Europe’s global economic influence.
· Cement the political project of European unity.
8.2 The Delors Report and the Path to EMU
In 1989, the European Commission, led by President Jacques Delors, produced a comprehensive report proposing a structured process to achieve Economic and Monetary Union (EMU):
1. Stage One: Removal of capital controls and increased economic convergence.
2. Stage Two: Establishment of the European Monetary Institute (EMI) to coordinate monetary policy.
3. Stage Three: Introduction of a single currency and a European Central Bank (ECB).
The Delors Report laid the intellectual and institutional groundwork for the euro, emphasizing the need for fiscal discipline, policy coordination, and the creation of a central bank independent from political influence.
8.3 The Maastricht Treaty
In 1992, the European Union was formally established by the Maastricht Treaty, which set the legal foundation for EMU and the euro. The treaty:
· Defined convergence criteria (known as the Maastricht criteria) for member states, including limits on inflation, government debt, deficit, exchange rate stability, and interest rates.
· Created the framework for the European Central Bank.
· Established protocols for fiscal discipline and economic governance.
The treaty was met with both enthusiasm and skepticism. Some feared the loss of national sovereignty, while others saw the euro as essential for Europe’s future.
8.4 Launching the Euro
On January 1, 1999, the euro was officially introduced as a book money currency used for electronic payments and accounting purposes. Physical euro banknotes and coins entered circulation on January 1, 2002, replacing national currencies like the German mark, French franc, and Italian lira.
The transition was one of the largest monetary experiments in history, involving:
· Conversion of trillions of national currency units.
· Harmonization of monetary policy under the European Central Bank.
· The imposition of some degree of fiscal discipline.
8.5 The European Central Bank (ECB)
The ECB was created as a supranational institution with the sole mandate of maintaining price stability in the eurozone. Modelled partly on the German Bundesbank, it was designed to be independent from political influence.
The ECB coordinates monetary policy for all eurozone members, setting interest rates, managing liquidity, and overseeing banking supervision.
8.6 The Euro’s Global Impact
The euro quickly became the second most important reserve currency after the U.S. dollar, reflecting Europe’s economic weight and the currency’s stability.
It facilitated:
· Increased intra-European trade and investment.
· Simplified cross-border transactions and travel.
· A stronger European voice in international financial institutions.
However, the euro also revealed challenges:
· The lack of a fiscal union made it difficult to manage asymmetric shocks.
· Divergent economic conditions among member states created tensions.
· Political disagreements over monetary policy and budget rules emerged.
8.7 The Euro and the Dollar Hegemony
While the euro was seen as a potential challenger to dollar hegemony, it has not replaced the dollar’s dominance in global finance.
The U.S. dollar remains the primary currency for international trade invoicing, foreign exchange reserves, and global financial markets.
Chapter 9: The Rise of Cryptocurrencies – Disrupting the Monetary Order
9.1 The Digital Frontier
The dawn of the 21st century brought the rapid spread of digital technology and the internet, reshaping economies and societies worldwide. Against this backdrop emerged a radical innovation: cryptocurrencies—digital currencies that operate independently of traditional banking systems and central authorities.
The promise was revolutionary: a decentralized, secure, and borderless form of money that could potentially bypass national currencies and reshape the international monetary system.
9.2 Bitcoin and the Birth of Cryptocurrency
The first and most famous cryptocurrency, Bitcoin, was introduced in 2009 by an anonymous entity known as Satoshi Nakamoto.
Bitcoin’s design challenged conventional ideas about money by eliminating central intermediaries and creating a system where trust was embedded in code rather than institutions.
9.3 Early Enthusiasm and Skepticism
Bitcoin initially attracted a niche group of investors. However, skepticism was widespread. Despite this, Bitcoin gradually gained recognition as a store of value—often dubbed “digital gold.”
9.4 The Explosion of Altcoins and Tokens
Following Bitcoin’s launch, a number of alternative cryptocurrencies (altcoins) emerged, each with different features:
· Ethereum (2015): Introduced programmable smart contracts, enabling decentralized applications (dApps) and token creation.
· Ripple (XRP), Litecoin, Monero: Each focused on speed, privacy, or different consensus algorithms.
· Stablecoins: Cryptocurrencies pegged to fiat currencies, designed to reduce volatility and facilitate everyday transactions.
The growing ecosystem fueled innovation in decentralized finance (DeFi), non-fungible tokens (NFTs), and new forms of digital ownership.
9.5 Governments and Central Banks Respond
The rise of cryptocurrencies triggered diverse responses from governments and central banks, with innovations or the introduction of strict regulations.
In addition, international bodies like the Financial Action Task Force (FATF) – with a secretariat that is hosted by the OECD – issued guidelines/standards to help develop crypto asset regulations.
9.6 Cryptocurrencies and the International Monetary System
While cryptocurrencies have not supplanted traditional currencies, their growing use in:
· Cross-border remittances.
· Hedge against inflation and capital controls.
· Alternative payment methods in politically unstable regions.
has posed questions about the future of monetary sovereignty and financial regulation.
The potential for de-dollarization via cryptocurrencies remains debated. Some emerging economies and private actors see crypto as a way to bypass U.S. sanctions or dollar dependence.
Chapter 10: The BRICS Initiative – A New Monetary Challenge
10.1 The Emergence of BRICS
The acronym BRICS—referring to Brazil, Russia, India, China, and South Africa—symbolizes a group of emerging economies seeking greater influence on the global stage.
As these nations expanded their economic power, they increasingly questioned the dominance of Western-led financial institutions and the U.S. dollar’s preeminent international role.
10.2 Motivations for Monetary Independence
BRICS countries share common interests in:
· Reducing exposure to dollar-related vulnerabilities, including sanctions and exchange rate volatility.
· Promoting trade and investment in their own currencies.
· Establishing alternative financial architectures that reflect emerging market priorities.
The 2008 global financial crisis highlighted the risks of overdependence on Western financial systems, energizing calls within BRICS to reshape the international monetary order.
10.3 The New Development Bank and Contingent Reserve Arrangement
In 2014, BRICS established the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) to provide financial support and liquidity mechanisms independent of the IMF and World Bank.
The NDB finances infrastructure and sustainable development projects in member countries, while the CRA offers a currency swap mechanism to cushion balance of payments crises.
These institutions represent a step toward financial autonomy, signaling the BRICS’ intent to reduce reliance on Western-dominated institutions.
10.4 Currency Swap Agreements and Bilateral Trade
To facilitate trade and reduce dollar dependence, BRICS countries have increasingly engaged in bilateral currency swap agreements, allowing transactions in local currencies rather than the U.S. dollar.
These arrangements aim to strengthen financial integration among BRICS nations and increase the international use of their currencies.
10.5 Proposals for a BRICS Currency or Basket
There have been discussions about creating a common BRICS currency or currency basket, similar in concept to the European Currency Unit or IMF’s Special Drawing Rights.
However, significant obstacles remain, including economic diversity, political differences, and institutional complexity. U.S. officials also indicated they do not like BRICS moves.
10.6 Geopolitical Implications
The BRICS monetary initiatives carry geopolitical weight. By promoting alternatives to the dollar system, BRICS countries seek to:
· Assert greater sovereignty over their financial policies.
· Mitigate the impact of U.S. sanctions and geopolitical pressure.
· Enhance South-South cooperation and multipolarity in global governance.
This monetary diversification reflects broader trends toward a more fragmented and contested international financial landscape.
10.7 Challenges and Prospects
Despite ambitions, the BRICS initiative faces key challenges:
· Economic heterogeneity: Varied growth rates, inflation, and fiscal policies complicate monetary coordination.
· Political tensions among members, such as India-China border disputes.
· Limited global acceptance of BRICS currencies outside their regions.
Nonetheless, BRICS continues to push forward with pragmatic steps to strengthen financial cooperation, reduce dollar dependence and attract new members.
Conclusion: The Evolution of the International Monetary System
The story of the dollar’s international role is far from static. It is a dynamic saga reflecting broader shifts in global power, economics, and technology. From the ambitious proposals of Keynes in the 1930s to the rise of cryptocurrencies and the BRICS initiative in the 21st century, we see a persistent tension between dominance and challenge, centralization and diversification, and national sovereignty and global interdependence.
The U.S. dollar’s position as the world’s primary reserve currency and medium of exchange has conferred significant advantages, but it has also exposed the international monetary system to vulnerabilities and imbalances. The Triffin dilemma encapsulates this core paradox: sustaining global liquidity through the dollar risks undermining confidence in the currency itself.
Alternatives have emerged at various times and in various forms—regional currencies like the euro, institutional innovations like the IMF’s Special Drawing Rights, attempts at bloc-based currencies like the convertible ruble, and most recently, decentralized cryptocurrencies. Each has sought to address the shortcomings of dollar dominance while contending with political, economic, and technical hurdles.
The BRICS countries’ efforts to build financial mechanisms and explore common currency frameworks illustrate the growing appetite among emerging powers to reshape the global monetary order and create a more multipolar system. Yet economic diversity, political complexities, and institutional inertia mean that a wholesale replacement of the dollar remains unlikely in the near term.
Technological innovation, particularly in the realm of digital currencies and blockchain, may accelerate change by lowering barriers to cross-border transactions and providing new tools for monetary sovereignty. Central Bank Digital Currencies (CBDCs) could blend state authority with digital efficiency, further evolving the system.
This evolving story reminds us that money is not merely a medium of exchange or store of value—it is also an expression of power, influence, trust, and cooperation at the different levels, regional and global ones. Understanding its past and present challenges may help offer crucial insights into the future of international economic relations and geopolitics.
Selected References
Bordo, Michael D., and Barry Eichengreen (Editors). A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform. University of Chicago Press, 1993.
Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton University Press, 2008.
Austin Robinson and Donald Mogridge (Managerial Editors): The Collected Writings of John Maynard Keynes: Shaping the Post-War World, Activities 1940-1946, Cambridge University Press, 1980.
Triffin, Robert. Gold and the Dollar Crisis: The Future of Convertibility. Yale University Press, 1960.
de Gaulle, Charles. Memoirs of Hope: Renewal and Endeavor. Simon and Schuster, 1971.
Narayanan, Arvind, et al. Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press, 2016.
Selected Websites
· International Monetary Fund (IMF) — https://www.imf.org The IMF website is a key-source for current data on global monetary issues, including SDRs, financial stability reports, and policy analysis on currency systems.
· European Central Bank (ECB) — https://www.ecb.europa.eu Provides detailed information on the eurozone’s monetary policy, the history of the euro, and the ECB’s role in international finance.
· Bank for International Settlements (BIS) — https://www.bis.org The BIS is often called the “central bank for central banks.” Its research on global banking, Eurodollar markets, and financial regulation is crucial for understanding the underpinnings of international finance.
· New Development Bank (NDB) — https://www.ndb.int Official portal for the BRICS’ development bank, providing insights into their financial projects, cooperation mechanisms, and strategic priorities.
· Federal Reserve Bank of New York — https://www.newyorkfed.org The New York Fed plays a central role in dollar liquidity provision and the Eurodollar market, offering data and analysis on dollar internationalization.
· CoinDesk — https://www.coindesk.com A leading news and analysis site for cryptocurrencies, blockchain developments, and regulatory updates—ideal for tracking digital currency trends.
· World Bank Data — https://data.worldbank.org A comprehensive database of global economic indicators, useful for comparing emerging and developed markets, and assessing BRICS economies.
· U.S. Treasury — https://home.treasury.gov Source of official U.S. government policies on international finance, sanctions, and dollar-related monetary policy.
· Financial Action Task Force (FATF) — https://www.fatf-gafi.org International body setting standards to combat money laundering and terrorist financing, including guidelines on cryptocurrency regulation.
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- Daniel Linotte (Author), 2025, Questioning the International Role of the Dollar, Munich, GRIN Verlag, https://www.grin.com/document/1597318
