The phrase `exorbitant privilege' used to describe the special status of the US$ as the world financial system's reserve currency is usually attributed to Valery Giscard D'Estaing, President of France between 1974 and 1981. In fact he was quoting financial journalist Raymond Aron, who used the phrase as early as 1965 when writing in the French national daily `Le Figaro'.
Barry Eichengreen, Professor of Economics and Political Science at Berkeley, is a historian of the development of global economics and the international monetary system. He is also an excellent writer, explaining the complex financial landscape of trade acceptances, special drawing rights and currency management to the non-specialist reader in clear language - though be advised, to get the most from this excellent book it might be better if you are equipped with the basics of undergraduate-level finance and economics.
Eichengreen's book covers the history of the US$ from its tentative introduction in the 1700s (when Spanish pesos were commonly used for transactions in America along with barter and a variety of other ad-hoc `currencies') through the creation of the Federal Reserve - the third, and finally successful attempt to create a reserve bank - to the rise of the US$ as the pre-eminent global currency after WW2 when America was really the only manufacturing economy left standing, and the only substantive exporter. This made the US$ a natural successor to its predecessor, Sterling, and everyone wanted and needed US$ for American goods.
The author lays out the benefits of having the global reserve currency: you can spend more than you earn generation after generation, run big trade deficits, enjoy cheaper borrowing than any other comparable economic jurisdiction, and print money at will, being the obvious advantages. Other trading partners are likely to hold your currency as a store of value (China for example, as of 2010 holds something like US$2.5 trillion as reserves) and this makes it not in their interest to see your currency devalue, as it will devalue their own assets. In a phrase, `earn less, spend more and the rest of the world will make sure you're OK' could be the motto.
Eichengreen explores rivals to the US$: principally the euro and the Chinese renminbi, both of which have their own problems and are unlikely to replace the US$ any time soon (for example, the euro though it represents collectively a more economically powerful trading bloc than the USA is weakened by being, currently, a currency without a central government). However the most likely future he foresees is one where a small number of other emergent currencies from politically and economically stable trading blocs - the euro, the Chinese renminbi, the Indian Rupee - might join the US$ and become principle trading currencies each of a geopolitical region where a great deal of bi-partisan trade is done (but he doesn't see either the Japanese yen or the Russian rouble as viable global currencies for reasons too complex to explore in a short review).
The final chapter titled `Dollar Crash' is devoted to exploring ways in which the US$ might lose its global hegemony more suddenly, rather than gradually over time. The chapter is quite detailed in its examination of the consequences of out-of-control US government deficits; the likelihood (not very, he says) of a panic flight from the US$ and all reserve-holders trying to dump their dollars over a short time; and the possibility of trade wars. His conclusion? There is virtually no chance of the US$ being replaced as the global reserve currency any time soon. Long-term, however - say 100 years from now - well, that might be a different discussion.
The book is only 177 pages excluding notes and index, but is densely written with a lot of detail. The reader less schooled in the detailed and nuanced minutiae of international economics might need to pay close attention, so it's not a quick read.
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