Final answer:
The U.S. dollar's status as the global reserve currency allows the Federal Reserve to effectively support the U.S. economy during crises, using monetary policy tools such as asset purchases to increase liquidity and manipulate interest rates, benefiting from the hegemonic stability theory.
Step-by-step explanation:
The status of the U.S. dollar as the reserve currency of the global economy has given the Federal Reserve significant leverage to employ various monetary policy tools during crises, such as the pandemic. The Federal Reserve has used methods like purchasing both traditional and nontraditional assets, which included injecting money into the banking system, and lowering short-term interest rates. This increased liquidity and lending capacity, supporting the U.S. economy. Additionally, the ability to devalue the U.S. dollar helped boost exports.
This capability relates to the hegemonic stability theory, which posits that a dominant world power (hegemon) can create stable conditions for the global economy. Since the U.S. is currently the world's financial hegemon, it has the flexibility to influence the international financial system significantly. This was notably established post-World War II when the U.S. played a central role in shaping the international financial system.