I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades.
It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.
The US is the reserve currency because of Bretton Woods. [1] Under the Bretton Woods agreements participating countries were to peg their currency to the dollar and the dollar, in turn, would be directly convertible to gold. The idea was to make it impossible for countries to artificially manipulate the value of their currency, and thus ease international trade standards.
The US' barrier to exploitation was on the gold clause. If we printed too many dollars, then other countries could do a gold call with the increasingly worthless dollars, get valuable gold in exchange, take the currency out of play, and the issue would be fixed. So punishment and self interest in a quite well designed system, kind of. The problem is we just printed a bunch of money anyhow and then when France decided to make a gold call with their reserves, we shrugged, defaulted, and just broke the agreement.
So this started the modern economic era in 1971 where currencies became completely detached and free floating. At that point about 85% of global reserves were USD. Countries began rapidly dumping the dollar and USD inflation began skyrocketing. In 1980 inflation in the US was at 13.5%! This era continued til around around 1990 with the USD falling to 47% of reserves, but then in 1991 the USSR collapsed leaving the US not only as the sole 'king' of the world, but also to former Soviet nations dollarizing once the dust had settled. This continued up til 2001 (USD at 72%) when there was both the dotcom bubble and the clear rise of China and Russia as global powers. We've now been on a steady decline since, with the USD currently down to about 56% of reserves.
[1] - https://en.wikipedia.org/wiki/Bretton_Woods_system
> I think this has the causality reversed.
Originally, yes. The US dollar did become a reserve currency because because of the circumstantially huge negotiating power of the USofA, however, as it stands now, the negotiating power is dependent on the dollar being reserve currency. The US is running on a consistent trade deficit, which is supported by the dollars covering economic growth outside of US.
When self-supporting systems are thrown off-balance, the sign in the feedback loop tends to reverse.
US Military has been a paper tiger in reality for quite some time. The problem is that Trump decided to demonstrate this in practice.
It is becoming obvious for gulf countries that US military protection is worth nothing.
The US military may be ossifying into a paper tiger, but I'd say Iran mainly shows Trump is a coward and an idiot.
From what I hear, what Trump did with Iran was burn through the US stockpile of certain fancy special-purpose wepons you're really only meant to use to punch a hole for your conventional forces to enter by. Trump is not willing to send in those conventional forces, because many of those personel will die. Trump may not care about the lives of the US personel per se, but with the mid-terms coming up he will care about the impact of those deaths on the election result.
Also: Gulf Wars I and II had a lot of build-up and prep, moving forces into the area; this was diving straight in because someone (my Israeli namesake) flattered Trump's ego.
Now I also think it's not even controversial to say that drone warfare is radically changing the nature of engagements. I don't believe the US could take on present-day Iran, owing to Iran's production of militarily relevant quantities of cheap and good-enough drones; a saturation attack can drain the defensive capabilities of warships, and while the exact performance is classified, a slow upgrade cycle would probably allow a saturation attack to overwhelm the *sensor* capabilities from not too long ago.
Laser defence systems may change that, but those aren't all-weather solutions, and the sea is the exact worse case for this. And I don't know if anyone's thinking about saturation attacks with submersible drones.
We could take on Iran with Russia, China, Pakistan, Afghanistan, and all the other Stan’s being the supply lines some what similar to Vietnam with six additional countries added, with the Iranians who appear to have the willingness to fight to the end.
How does it work long-term for the USA? In time the United States would have to build up to half a million men on the ground. The United States at its peak in Vietnam for example had over half a million men on the ground.
The biggest reason the Ukrainians are holding their own first and foremost is they are willing to fight, second is the supply lines. Vietnam won because they were willing to fight and they had China and Russia as their supply lines.
Afghanistan against the Russians, and Afghanistan against America was the same. The Afghans were willing to fight as long as they had material coming in from the USA and the same was true when they were getting all their supplies from the Chinese, Pakistan, when they were fighting us.
Supplies are important, but what’s more important is whether or not a group of people have the heart to fight to the end no matter what.
I would, like you, draw comparisons with Vietnam.
I think this means that the US is going to get stuck there for a very, very long time, as there are downsides to all options including pulling out, which may in turn survive a change of president.
On the other hand, all it takes is a president who doesn't care about the downsides, or thinks the downsides are worth the cost, and suddenly Iran's free to toll the strait.