Yup, that’s the situation as I understand it. As for how it originated, I’m summoning up Michael Hudson in (I think) Super-Imperialism - as far as I can remember, it essentially began with US war spending from Korea and Vietnam. Though firstly, after WW2 the US was by far the largest manufacturing economy in the world and also had enormous loans to half the world, so US treasury bonds were by far the safest place to store savings as there was absolutely no chance the US could default. The US was a net exporter through the 50s and early 60s, with the need to fill manufacturing jobs resulting in increased power for labor and the development of the middle class (helped along by leftover policies from the New Deal and the threat posed by rapidly improving Soviet living standards). The national debt was small because although US treasury bonds, denominated in dollars, were sought after for savings, lots of places also had to buy goods from the US using those dollar savings.

This changed as soon as the US started getting involved in land wars in Asia. Suddenly it needed to buy huge amounts of materials and goods to supply its armies, the formation of which also took a lot of working-age men out of its economy and didn’t directly produce anything tradeable. The balance of dollar flow started to shift from inward to outward as other nations started selling goods to the US - however, having just got those dollars from the US, the safest place to store them was back in US treasury bonds! So the national debt started to climb, but with its huge tax base there was still no risk of the US defaulting so treasury bonds remained rock-steady. Even as the Vietnam war kept escalating, and the US had to buy in more and more goods and materials to keep up the war machine, printing more and more dollars to do so, those dollars just flowed straight back into US treasury bonds - other countries’ dollar earnings were saved in the form of loans to the US! The US debt ballooned, but it didn’t matter because of their (then-)unassailable economic lead ensuring that their bonds were still much safer than any other alternative. Once US economic advisors realised this, all barriers to the US printing more money started being lifted, culminating in Nixon making the dollar a fully fiat currency in 1971.

However, importing all these goods ended up allowing other countries’ industries to develop, as well as putting pressure on US workers’ wages through competition with foreign workers. Previously, US workers had high standards of living because although prices for goods in the US were high, their wages were also high. Economic rent-seeking was much lower, as it would have impeded industrial efficiency so it was stamped out by industrial capitalists, who had much more power at that time. But once imported goods started flooding the market that were lower priced (= made by workers with lower wages = lower living standards) US workers’ wages also started to decline. There was one key industry where this didn’t happen, both from necessity and conscious US policy (known as “Guns and Butter”) - arms manufacturing. The US only fights wars using its own weapons, because it will never allow one of its vassals to develop an arms industry that could threaten its own. This also puts industrial laborers in the arms industry on the side of US warhawks - Michael Hudson mentions this, that some industrial unions were cheering on the Vietnam war and fighting against the anti-war movement because it was the source of their paychecks! So, the US imported raw materials from other countries, paid those countries in dollars, those dollars went straight back to the US as loans, and the US workers used the materials to build the arms to encircle those countries.

The other key component of this process that arose in the earlier stages of the US pumping out all those dollars, was the use of dollars as ‘reserve currency’. Essentially, the main problem of international trade is ensuring trust throughout the process of actually sending goods from one owner to another. The person selling the goods needs to know you’re actually able to buy them, but the buyer doesn’t want to pay for the goods until they’ve arrived and can be inspected for quality. The buyer therefore needs a way of setting aside a given amount of monetary value, held safely between the moment the goods leave the seller and are accepted by the buyer. The problem is choosing a storage method - if the store of money loses value over time, then the buyer has just wasted money during the transit of the goods. Even worse, if the store is too volatile it could even become completely worthless in the mean time, ruining the trade for both parties. But lo and behold, at this time exists a way of storing value with an absolutely rock solid backing - US dollars. So, everyone trading anything, anywhere, chose to use US dollars as the ‘reserve currency’ for international trade. This had the effect of driving a constant demand for dollars, allowing an effectively unlimited amount to be printed - because any growth in international trade also resulted in a growth in the need for dollars.

Such a system had actually existed before, imposed by the British on the “Commonwealth” that forced its members to trade exclusively in Pounds Sterling, allowing the Pound to maintain value. However, as part of the aftermath of WW2 this region was swallowed by the Dollar (and Hudson marks this as one of the decisive moments of the end of the British Empire). So its implementation wasn’t just an accident, but intentionally helped along by US policy, as seen in one aspect more than any other - the petrodollar. By order of the US, no country is allowed to buy oil in any currency other than US dollars, and until literally last year this was an almost-undefiable iron law. It’s not a coincidence that immediately before the complete destruction of both Iraq and Libya, Saddam and Quaddafi had each made plans to sell oil in currencies other than dollars. The necessity for the existence of a saving account denominated in dollars for the trade of even a single drop of oil anywhere on the planet is (was) a cornerstone of the dollar’s domination as reserve currency, and the US used the very military might that other countries’ resources had built to keep those countries in line.

This domination of world trade by the need for dollars also gave the US another enormous power: its financial institutions could essentially dictate the economies of other countries. By holding the right to create loans in dollars, the IMF and World Bank can decide what businesses are allowed to be financed. Going to underdeveloped (overexploited!) countries that have been victims of colonialism, that have had their own industries destroyed and so need dollars to import vital goods, the IMF can exclusively fund industries that turn the most profit for the US. Probably the most important factor in this is agriculture - the IMF has never funded a project to allow countries to grow their own food, only to grow cash crops for sale to the US/the West. This means they have to rely on US food production (another key strength of the US’ geography, and heavily subsidized besides) - ideally given in part for free as ‘aid’ in order to completely destroy the market for local food producers. This results in unequally trading cash crops for food, so the US gets to eat AND enjoy luxury goods, while the poor country survives but never consumes any of its own products. The other crucial benefit of this for the US is vulnerability to sanctions - if you only produce cash crops, the US can simply starve you at will. Which is why Hudson remarks that the IMF is just a room in the basement of the Pentagon. This, incidentally, was completely lost on the failsons currently commanding the Empire when they tried to sanction Russia, the largest exporter of grain in the world: you can’t withhold your corn from an enemy that wasn’t buying it in the first place.

So for all these reasons, the dollar has been the essential lifeblood of international commerce for over half a century, and its position is maintained through institutional inertia, soft power and extreme violence. Trading in dollars has just been the default option for so long, and so many countries’ central banks’ savings are dominated by dollars that rearranging matters would be extremely complicated even if the dollar wasn’t also directly controlled by an incredibly powerful, violent state that wants to keep things just as they are. Even so, in the wake of the sanctions against Russia there are now huge volumes of trade being done outside of dollar control (and the SWIFT banking system - completely forgot to mention that). Even oil is now being sold in rubles and yuan. China is pioneering digital currencies (actual ones, not blockchain bullshit), which could avoid the need for holding currency reserves for international trade at all. But there’s still a huge hill to climb, and the US still has plenty of counter-maneuvers available.

Thanks for the answer to the original questions. This is very interesting. I’ve actually studied a lot of classical economics in a previous life, but I have never until this very moment been able to get in the right mindset to think about how currency works. I always hated it.

You’ve very welcome. The most important thing for understanding currency for me was David Graeber’s Debt, the First 5000 Years and the related chapters in Hudson’s Killing the Host that discuss the origin of money in ancient Mesopotamia. It’s absolutely fascinating and also clarified a lot about the actual nature of money, so I highly reccommend them both - though the Killing the Host chapter is a lot shorter and more direct.

This took a while to write, and I stayed up a little past my bedtime, so you may notice it start to get less coherent towards the end, in punctuation if nothing else. I hope it’s helpful!