The Myth of the US Dollar System and China's Rise: The Future of Reserve Currency from a Historical Perspective

Mainstream economics explains that the dollar is used as a reserve currency because it preserves credibility and value and is highly liquid. Critics, however, argue that this view ignores the dollar's history and its questionable aspects.

The dollar is said to have gained reserve-currency status as a result of controlling military power and oil settlement, and Treasury issuance has also functioned as a means of sustaining inflation.

We are living in a strange era in which the debtor, the United States, pushes around creditors such as Japan and Europe. The analysis holds that this reversal of power arises because the US forces other countries to hold its Treasuries while it keeps hold of military power and oil settlement rights without any guarantee.

Britain and Japan, which hold large amounts of US Treasuries, are instead subordinated to American influence. The US is said to use its military power and control of oil settlement to maintain the dollar's forced credibility.

Other countries, to protect assets tied to the dollar system, have little choice but to submit economically to the US.

That creditors cannot resist debtors even though they hold the claims shows the distinctive power structure of the dollar system.

Most advanced economies are burdened with dollar debt, but some argue that the main reason is not welfare expansion or crisis response. From a historical view, the rise in debt is said to stem from the goal of stabilizing the dollar system.

A structure has formed in which countries are made to owe each other, stabilizing the dollar, and this is said to conceal the US's 'crime' of dollar inflation.

Safeguards that force repayment only through dollars consolidate a dollar-centered economic system.

By making countries take on dollar debt, a structure is created in which the dollar system cannot be broken.

Even if political trust declines, economic linkage makes it difficult to escape the system.

Advanced technology is not linked to general industry, weakening overall economic competitiveness.

This trajectory is said to resemble the path once taken by the Soviet Union, and some argue that America's decline is a certain fact.

China, by contrast, is said to be walking the opposite path, concentrating on strengthening its industrial base.

From 1995 to 1996, Korean companies took on enormous amounts of foreign-currency loans from Wall Street. This became a major turning point for the Korean economy.

Afterward, financial institutions refused to extend maturities, and as the asset values of Korean companies plunged, the situation worsened.

A process in which sound companies were bought and resold through exchange-rate manipulation repeated itself, with major effects on the Korean economy.

Since 2014, China has signaled that it will no longer hold US Treasuries and has moved to unwind various US bonds.

This is interpreted as a strategy to move away from the earlier approach of absorbing dollars through a real-estate bubble.

The Chinese government is pursuing a long-term strategy to escape the dollar-dominated structure and is changing its position toward the US.

This was described as a US-led manipulation of currency values.

The sharp rise in the yen's value in particular led to a decline in Japan's export competitiveness, which is considered the starting point of its economic decline. During this period, Korean manufacturing also benefited indirectly by filling the gap left by Japan.

Japan had begun entering a long stagnation along with the collapse of its real-estate bubble.

Japan offered to buy large amounts of US Treasuries in exchange, but this exchange-rate strategy did little to help its domestic recovery.

As a result, Japan could not escape economic stagnation even with a yen-depreciation strategy.

This reflects concern about weakening American industry and a declining dollar.

A global fall in confidence in US assets could ultimately lead to the collapse of the dollar system.

Hollowing out of US manufacturing, excluding IT, is a major factor supporting these concerns.

Rising inflation, felt through indicators such as the Big Mac index, has intensified these concerns.

The erosion of mutual trust between Wall Street and the public also makes the dollar's future uncertain.

Some forecast that if inflationary policy continues, the dollar's collapse will be an inevitable outcome.

Right-wing parties rising in the West can be read as holding traditionally left-wing ideas. They tend to call for market regulation and a strong government role.

These parties show an anti-elitist tendency aimed at curbing capitalist exploitation.

This suggests a shift in political landscape that cannot be fully explained by the traditional left-right framework.

In 1989, China decided to gradually introduce capitalist policies on a planned-economy foundation. This reflected a cautious approach to economic system transition.

Russia, by contrast, received advice from Western economists and tried to introduce a radical free-market system, which caused severe economic hardship.

The radical transition brought extreme economic suffering to Russia, in contrast with China's gradual approach.

Some argue that when the share of foreign capital inflow is too high, it becomes difficult to establish economic sovereignty.

Countries heavily dependent on foreign capital may be more vulnerable to external economic shocks, and their independence in economic policy may also be impaired.

This process of American industrialization shares many similarities with China's current technological growth.

Since the 1980s, China has pursued qualitative growth through quantitative production, a path that parallels America's economic rise in an earlier era.

China's rise is described as an unstoppable historical current. Rather than simply condemning or dismissing China, it should be objectively acknowledged and analyzed.

Thorough study and analysis of China is urgently needed to consider how Korea should build its economic diplomacy.