Exorbitant Privilege

In the wake of the worldwide financial crisis, attention has turned to America's position in the global economic order. Will the U.S. continue to occupy the commanding heights? Or will rising powers like China and European Union gradually achieve parity or even surpass the U.S.' If there is one indicative measure of America's shifting status in the global econwmy, it is the dollar. The dollar, the world's international reserve currency for over eighty years, has been a pillar of...
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In the wake of the worldwide financial crisis, attention has turned to America's position in the global economic order. Will the U.S. continue to occupy the commanding heights? Or will rising powers like China and European Union gradually achieve parity or even surpass the U.S.' If there is one indicative measure of America's shifting status in the global econwmy, it is the dollar. The dollar, the world's international reserve currency for over eighty years, has been a pillar of American economic hegemony. As a critic of U.S. policies once put it, it bestows upon the dollar "exorbitant privilege" in international finance and reinforces U.S. economic power. In Exorbitant Privilege, eminent economist Barry Eichengreen explains how the dollar rose to the top of the monetary order before turning to the current situation. The current crisis has placed serious strains on the dollar, and many fear that Americans are in for a prolonged period of belt tightening because of increasing interest rates and the rise of competing currencies like the Euro and the Chinese renminbi. Eichengreen suggests that while we are most likely entering an era with more than one reserve currency, it does not constitute a crisis. While the US will lose some of its power, a multiple-reserve currency system has worked before--in the era prior to World War I. Given the pervasive predictions of US decline, this will be a counterintuitive--and welcome--rejoinder to the emerging conventional wisdom about American decline.