Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System

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"Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System"

As a book, Barry Eichengreen’s Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System perhaps suffers from an excess of sober-minded sensibility. He argues that the dollar almost certainly will lose its status as the global currency, but that it probably won’t happen too quickly, and it won’t necessarily be that big of a deal.

The key point here is that you need to get cause and effect straight. Growth in China, India, and Brazil are bad for the dollar’s unique status, but not in a way that’s bad for America. Similarly with Europe working its issues out. Alternatively, the dollar could use its unique status as the consequence of a catastrophic economic or budgetary collapse. That would be bad. And it would be bad for the dollar. But it’s the catastrophic collapse here that’s bad, not the dollar stuff, the dollar stuff is an effect. The basic thesis is well summed-up by this history lesson on the pound: “Sterling lost its position as an international currency because Britain lost its great-power status, not the other way around. And Britain lost its great-power status as a result of homegrown economic problems.”

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