Political determinants of international currencies: What future for the US dollar?

ABSTRACT In recent years, the economic determinants of international currency status have attracted growing attention among economists. But what about the political determinants? This paper proposes a framework or taxonomy for thinking about this question. It identifies two distinct channels – one indirect and one direct – through which politics can influence the international standing of a currency. In the former category, politics is important through its impact on three key economic determinants of international currencies: confidence, liquidity, and transactional networks. In the latter category, politics matters more directly when a currency's international status is supported by states for reasons unrelated to these economic determinants. The paper explores briefly how these two channels of political influence might influence the dollar's future as an international currency. This exploration is not designed to provide a new definitive answer to the question of the dollar's future, but rather the goal is to highlight the various ways that political scientists can widen analyses of this topic.