The Dual Nature of US Monetary Hegemony: The Strategic Shift in Fed Monetary Policy, 2008-2014

Abstract

This study argues the nature of US monetary hegemony should be viewed as a strategically shifting character depending on situational conditions, rather than a fixed essence. Unlike existing studies focusing exclusively on either benevolent or predatory character of the hegemony as a given, this study suggests the “benevolent leadership” stabilizing the system during a systemic crisis reverts to a “predatory hegemony” once the crisis subsides. To verify this, this study analyzes the Federal Reserve’s expansionary policy from 2008 to 2014. It reveals that during the systemic crisis, the Fed functioned as a “transnational central bank,” absorbing political and economic costs to stabilize the dollar system. However, once the crisis was mitigated, it shifted its role back to “America’s central bank,” externalizing policy costs to foreign countries to achieve domestic goals. By explaining this dynamic duality of monetary hegemony with a consistent logic, this study complements the limited explanatory power of existing theories regarding the nature of US‘ dollar hegemony.