What is the dollar system based on and how will it evolve? Adam Tooze

The world only embarked on the experiment of fiat currencies when US President Richard Nixon took the dollar off gold in 1971.

The so-called Bretton Woods 2.0 system was not planned in Washington. It was adopted in the late 1990s as a form of self-insurance by emerging markets seeking protection against the risks of financial crisis.

Above all it was China that pegged its exchange rate and began large-scale official reserve accumulation in the 2000s. This conferred on the US the exorbitant privilege of stable, official funding of twin deficits — on current account and in government budgets.  

Around 2015,the accumulation of new reserves plateaued. And yet America’s twin deficits continue. 

But how are they funded, if not through official reserve accumulation? In part through off-the-books holding of reserves on the balance sheets of China’s state banks and, above all, through private foreign investors acquiring US assets.

America’s deficits are financed by inflows from Europe, South Korea, Taiwan and Japan.

Anyone worrying too much about America’s chronic fiscal incontinence can easily seem out of touch. We aren’t in the 1990s any more.

America’s currency today is, above all, a promise of liquidity 

Adam Tooze Financial Times 6 July 2026

https://www.ft.com/content/d063fef6-c92c-4058-998f-bc5bfecdfe8e


The dollar dominance. Exorbitant privilege.

It is the dollar-based global financial system that is the real source of America’s hegemonic power.

https://englundmacro.blogspot.com/2026/07/the-conversation-around-dollar.html

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