Over the last century America’s money—the dollar—has come to dominate the global monetary system. It is used not just by Americans, but in other countries, in the global black market, and by importers and exporters. And it is the primary reserve currency for central banks. This status is what Barry Eichengreen calls an “exorbitant privilege,” because it confers numerous benefits to individuals, companies, and governments. Collectively, it also confers the ability for Americans to consume beyond our ability to produce.
Professor Eichengreen in his book Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, chronicles the rise of the dollar to world dominance, and what it means for the US. He then explores the possibilities of its demise and possible crash. The author should be commended for at times thinking outside the mainstream box, where such issues are often ignored.
He believes that the world is heading toward a state in which there are several reserve currencies, notably the euro and the Chinese renminbi. He maintains that a reserve currency status is based on economic strength: Europe has it and China and India are gaining it rapidly.
