Imagine there’s no dollar. American Money – its Past, Present, and Uncertain Future. 4219-SE032
Imagine there's no dollar
It's easy if you try
No hell below us
Above us, only sky
(John Lennon, Imagine, slightly twisted )
The post-war Pax Americana has been to a large extent based on the international dominance of the US dollar. This dominance has been slowly eroding, especially since the demise of the Bretton Woods monetary system (1973). It was expected that the end of the bi-polar world caused by the disintegration of the Soviet Union should strengthen the leading position of the US economy and that of the dollar. Yet, in the past 30 years many new challenges appeared and now there is a growing concern among economists and political scientists that the US monetary dominance is at risk. It has become a hot topic for discussion especially in the context of the Russian aggression on Ukraine and the ensuing American sanctions. The latter have profound consequences for both the target and the sender country, as well as for many third parties around the world. As a result we are witnessing serious attempts by Russia, China, India, Saudi Arabia and others at crowding out the dollar from international payments and substituting other currencies (e.g. Russian Ruble or Chinese Renminbi) for it.
This course will discuss and assess the above challenges to the US dollar world dominance. It will start with (re)-introducing the student to the basics of money, banking and financial instruments (Part 1). Then the internal (domestic) and external (international) aspects of the US banking and money will be presented (Parts 2 and 3). This will lead us to the core issues of the changing US dollar world dominance (Part 4). Finally, some applications of the above discussion to present economic and political problems facing the US will be dealt with (international sanctions; US trade deficit). As a final step (Part 5), students will be asked to write a short essay and discuss in class an imaginary situation in which there is no US dollar in existence.
1. Introduction/Repetition
1.1. Basics of money (origins; history; functions; evolving forms; measures of money supply)
1.2. Basics of banking - including the role of a central bank (types of banks, their functions, and operations)
1.3. Basics of financial instruments
2. The US money and banking – domestic aspects
2.1. The role of sound money and banking in economic development of the United States (Alexander Hamilton)
2.2. The origins/history of American currency and its present shape(s)
2.3. History of American banking and its today’s structure
2.4. A closer look at a balance sheet of a major US commercial bank (Fifth Third Bank)
3. The US money and banking – international aspects
3.1. The Bretton Woods monetary system (1944-1973) and the central role of the dollar
3.2. International monetary system post-1973 and the changing role of the US currency
4. The US dollar and American dominance in the world – past, present, and uncertain future
4.1. The US dollar (USD) international allure – why it does exist and will it last?
4.2. The USD as the world reserve currency
4.3. The USD dominance in international trade and capital flows
4.4. The USD-denominated financial instruments (securities)
4.5. Financial innovations “made in USA”
4.6. The US control over international payments system (SWIFT, etc.)
4.7. Rising competition from Chinese RMB and other major currencies
4.8. Rising competition from cryptocurrencies
5. Applications
5.1. The dollar and American economic sanctions on Russia and other rogue regimes
5.2. A connection between the international position of the dollar and the US trade deficit
5.3. “Imagine there’s no dollar” – an exercise in economic and political speculation
Type of course
Mode
Prerequisites (description)
Course coordinators
Learning outcomes
1. KNOWLEDGE
After successfully completing the course the student should:
• have a good grasp of basic concepts and processes taking place in the area of money and banking in general
• understand the role of central banks and their monetary policies – in general and in case of the US Federal Reserve Bank
• know the characteristics of and the ways of operation of basic financial instruments encountered on today’s international and national markets – with the stress on the US market
• know the origins and present-day operations of main international financial organizations, like the IBRD and IMF, as well as their significance for domestic (US) and international business, as well as the role of the US in their creation after WW2
• know what basic financial instruments, such as a promissory note, a bill of exchange, a check, etc., are
• know how tariffs are and how they impact both the imposing and receiving country’s economy and polity.
• know the basic types of political sanctions, the ways they operate and create impact of various kinds.
• appreciate the fact that sanctions create costs on both the target and the sender country’s economic agents and that some of those costs are transactions costs.
• know the basics of legal underpinnings of tariffs, non-tariff measures and political sanctions embedded in the US laws and regulations.
• know the US policies in the area of international trade and finance under Presidents Trump and Biden
• be aware of the difficulties in predicting outcomes of monetary and financial policies
2. SKILLS
After successfully completing the course the student should:
• be able to explain all the elements/features found on historical and contemporary banknotes – on examples of American dollars from various periods.
• be able to retrieve (from the web) relevant monetary, financial, and trade data for the US and some other major world economies, manipulate them (in a spreadsheet form), and use them as arguments in analysis and discussion
• able to use critical thinking in order to assess quality of data originating from different sources and avoid low quality, second-hand data sources
• know where to fetch information and data on international sanctions and their impact on economic agents all over the world.
• be able to access the Global Sanctions Database (GSDB)
3. SOCIAL COMPETENCES
After successfully completing the course the student should:
• be aware of differences of opinions as to the efficiency of monetary and trade policies (even among top economists)
• be aware of differences of opinions as to the efficiency of political sanctions and other ways of exercising (economic) pressure on other countries – with stress on the US sanctions on other countries
• be open to different views on the above subjects.
• be able to cooperate in a small team in order to settle down the differences of opinion among its members as to achieve a common goal.
• be able to effectively negotiate with other group members how the presentation of final outcome of their common work should look like
• be able to cooperate with teammates using the distance learning tools (the e-learning platform/Moodle).
Assessment criteria
The course grade will consist of three elements (with respective weights, as indicated):
50% = student’s in-class* performance, including presentations of the assigned reading material [* 'in-class' may mean ' a DL class, eg. Zoom or Google Meet/Classroom if the University switches to the DL mode)
25% = a final test (written; may contain multiple choice, fill-in, matching pairs, true-false, and short open questions)
25% = a final essay to be discussed in class and submitted in final written version before the end of semester on the title topic of this seminar: “Discuss an imaginary situation in which there is no US dollar in existence “. According to the standard ASC UW rules – minimum length is five standardized pages; max six pages; in English; allowed formats: doc, docx, rtf, open office, pdf; further details will be spelled out on the e- learning platform].
The passing minimum (threshold) for the course is 50 percent (i.e. 50 points out of 100). Points will not be rounded. The letter grade will be given according to the following scale:
< 0; 50) = 2.0
<50; 60) = 3.0
<60; 70) = 3.5
<70; 80) = 4.0
<80; 90) = 4.5
<90; 100> = 5.0
Students are allowed to miss two meetings. Each further absence will result in diminishing student’s final result by 5 percentage points.
Students failing the course will be given one chance to improve the grade. It will consist of a comprehensive make-up test only – the test will count as 100% (i.e. the in-class performance and the essay will not count). It will be given in the regular university make-up session. The grading scale applied to the make-up will be steeper than on the original one given above.
ATTENTION: students who have failed the course and have not submitted the essay on time and/or have not disucssed it in class WILL NOT be given a make-up test.
Practical placement
N/A
Bibliography
Required reading:
• N. Gregory Mankiw (2011). Brief Principles of Macroeconomics, South-Western College Pub; 6th edition; chapters 6, 8, 9, 11, 12. This material is on pages: 113-128; 155-192; 219-268. It covers basics of money and banking (repetition). Note: (1) earlier editions are acceptable, as well; (2) you may use textbook’s slightly extended version: N. Gregory Mankiw (2011), Principles of Macroeconomics, South-Western College Pub; 6th edition. There is also a version of the above textbook published as N. Gregory Mankiw & Mohamed Rashwan (2018). Principles of Economics. Arab World 3rd Edition. Cengage Learning EMEA. ISBN-13: 978-1473749504. There are two chapters there that may substitute for the above, namely 30 & 31 (pp. 505-543). I will make those chapters available to the participants on our e-learning platform.
Incidentally, any newer (or older) edition of this textbook or for that matter any other basic mainstream Basic Economics textbook will be equally good for our purpose. In particular, this may be J. Gwartney, R. Stroup, R. Sobel, D. Macpherson, Economics. Private and Public Choice, Thompson/South Western, whose two of the newest editions are available in the ASC Library [but any edition from 21st century would do].
In the second part of the course we will be dealing with quite fresh and evolving matters, for which there’s no particular textbook. That part will be based almost entirely on articles, press clippings, and short analytical texts available on the net. They will be partly indicated by the instructor (and made available on the e-learning platform for the course. Also, numerous handouts, transparencies (PPTs) and/or hyperlinks to valuable sources of good quality information, multi- media materials and statistical data will be placed on the University of Warsaw e-learning platform (Kampus) for retrieval. In particular, we will be using some central banks’ websites and data-bases (e.g. FRED: the US Federal Reserve Economic Database).
Additional reading:
• Blinder, Alan (2022). A Monetary and Fiscal History of the United States, 1961–2021. Princeton University Press
• Mishkin, Frederic (2012). The Economics of Money, Banking and Financial Markets, Prentice-Hall; 10th edition. This is a standard (and very popular) US textbook – it extends well beyond our syllabus, but may be considered as a good extension by more ambitious students.
Additional information
Additional information (registration calendar, class conductors, localization and schedules of classes), might be available in the USOSweb system: