The US dollar has played a central role in the international monetary system, but it currently faces stiff competition from other currencies. This column argues that the benefits of international liquidity provision might be higher than previously thought when one accounts for general equilibrium effects. Quantitatively, the welfare cost of losing international status is not inconsequential for the issuing country. For the US, it amounts to between 0.4% and 1.1% of consumption each year.
Cathy Zhang, 09 January 2016
Eswar Prasad, 29 March 2014
Eswar Prasad talks to Viv Davies about his recent book, ‘The Dollar Trap: How the US dollar tightened its grip on global finance’, which examines how, paradoxically, in light of the financial crisis, the dollar continues to play a central role in the world economy and why it will remain the cornerstone of global finance for the foreseeable future. They also discuss the current frameworks for international economic cooperation as well as currency wars, unconventional monetary policy and the prospects for the renminbi becoming the world's reserve currency. The interview was recorded in London in March 2014.
Livia Chiţu, Barry Eichengreen, Arnaud Mehl, 17 March 2014
The dollar remains dominant in the global monetary system. The clearest sign for its prevailing status is the dollar’s role as an exclusive currency used in the global oil market. This column suggests that there is room for more than one international currency even in a market as homogenous as the oil one. This is consistent with the view that network increasing returns are not as strong as sometimes supposed, first-mover advantage is not everything, and incumbency is no guarantee for continued dominance.
Barry Eichengreen, Arnaud Mehl, Livia Chiţu, 23 May 2012
Conventional wisdom states that the dollar took over as the leading international currency after the Second World War. This column presents new evidence from the bond markets suggesting it was much earlier in the 1920s. This implies that inertia and lock-in effects in international currencies are not all they’re cracked up to be and that the shift to a multipolar currency system might happen sooner than commonly believed.
Rebecca Hellerstein, William Ryan, 06 February 2010
Will the dollar lose its dominant role in international transactions? This column argues that this will happen quite slowly, if at all. It presents new evidence that in developing economies, demand for dollars hinges much more on historical factors than on recent experience. The highest inflation rate recorded within a country over the past 30 years explains flows of cash dollars more compellingly than recent inflation rates.
Benjamin Cohen, 13 September 2008
Jeffrey Frankel and others predict that the euro could surpass the dollar as the premier international currency relatively soon. This column argues that predictions borne of economic formalism unrealistically neglect the political forces shaping international currencies. Politics may ensure the dollar’s dominance for some time.
Jeffrey Frankel Frankel, 18 March 2008
One of the world’s leading international economists explains how the euro could surpass the dollar as the premier international currency and examines the geopolitical implications of such a shift.