The Dollar’s Influence in East Asia: Benevolent or Overbearing? A Comparative Answer in the U.S. Economic Aid and the Dollar Standard
There is no doubt that the United States has been a dominant economic power in the world. U.S. troops are deployed in the various corners of the world, and their military presence is often a strong force in propping up the status quo or a peaceful co-existence, possibly and hopefully more peaceful than otherwise. The U.S. has held an important role in the international system as a military power. But also in an economic sense, the U.S. has been a dominant leader. As a major consumer market and an investor, U.S. influence on the global economy is significant to say the least. This is especially true in East Asia. Through military alliance and economic aid, the U.S. crafted close relationships with East Asian countries and influenced their domestic policymaking. For example, as a provider of military and economic stability, the U.S. wielded much influence on domestic macroeconomic policies of Korea and Taiwan during the early industrialization years of 1950s-60s. The economic aid came with conditions, and Korea and Taiwan complied. Although explicit economic aid stopped in the late 1960s, other forms of assistance, for example loans, grants and technology transfers continued, and more importantly security alliances remained strong. The U.S. still holds much influence over Korea and Taiwan, as a military ally and a major trade partner. In the present day, Korea and Taiwan closely peg their currencies to the U.S. dollar and hold large currency reserves in dollars. As a result, macroeconomic stability of Korea and Taiwan depends largely on the stability of the dollar. In this way, the dollar’s influence on Korea and Taiwan is quite significant. Similar to but also different from the way that Korea and Taiwan depended on U.S. economic aid, they again depend on the dollar to anchor economic stability.