For more than half a century, the U.S. dollar has been not just America's currency but the world's. It is used globally by importers, exporters, investors, governments and central banks alike. Nearly three-quarters of all $100 bills circulate outside the United States. The dollar holdings of the Chinese government alone come to more than $1,000 per Chinese resident.
This dependence on dollars by banks, corporations, and governments around the world is a source of strength for the United States. It is, as a critic of U.S. policies once put it, America's "exorbitant privilege."
However, recent events have raised concerns that this may soon be a privilege lost. Among these have been the effects of the financial crisis and the Great Recession: high unemployment, record federal deficits, and financial distress. In addition, there is the rise of challengers like the euro and China's renminbi. Some say that the dollar may soon cease to be the world's standard currencyùwhich would depress American living standards and weaken the country's international influence.
In Exorbitant Privilege, one of our foremost economic historians, Barry Eichengreen, traces the rise of the dollar to international prominence over the course of the 20th century. He shows that the greenback dominated internationally in the second half of the century for the same reasonsùand in the same wayùthat the United States dominated the global economy.
But now, with the rise of China, India, Brazil, and other emerging economies, America no longer towers over the global economy. It follows, Eichengreen argues, that the dollar will not be as dominant. But this does not mean that the coming changes will necessarily be sudden and direùor that the dollar is doomed to lose its international status. Challenging the presumption that there is room for only one true global currencyùeither the dollar or something elseùEichengreen shows that several currencies have shared this international role over long periods. What was true in the distant past will be true, once again, in the not-too-distant future.
The dollar will lose its international currency status, Eichengreen warns, only if the United States repeats the mistakes that led to the financial crisis and only if it fails to put its fiscal and financial house in order. The greenback's fate hinges, in other words, not on the actions of the Chinese government but on economic policy decisions here in the United States.
`A tour de force, by the outstanding contemporary scholar of the 20th century history of the international monetary system.
John Williamson, Senior Fellow, Institute for International Economics
`The great strength of Eichengreen's historical analysis is his enormously wide knowledge of, and sympathy for, economic and political conditions in all the major countries concerned. The work of a master economic historian.'
International Journal of Finance and Economics,
`Eichengreen shows an unerring ability to get right to the heart of the matter....He summarises the current debate on financial crises, and then takes it one stage further ... neatly and sensibly argued ... an insightful insider's analysis ... It will bring the reader up to speed on the topic in record time: everything you need to know is tidily and concisely expressed in this refreshingly accessible book, which caters for the practitioner and the novice
Central Banking Journal
`Incredibly relevant work'
`Short and eminently readable...In just 177 pages of text, [Eichengreen] provides a wealth of material for both the lay reader and the scholar...You can't do better than Eichengreen for a solid read on the dollar's wild ride.'
`A truly superb book on the role and global standing of the dollar--past, present and future. Those exposed to the evolution of the global economy, and that's virtually all of us, will find his book extremely thoughtful and a great read.'
Mohamed El-Erian, CEO and co-CIO of PIMCO
`A fascinating and readable account of the dollar's rise and potential fall,'
`A rare combination of macroeconomic mastery, historical erudition, good political instincts and the sort of stubborn common sense that is constantly placing familiar problems in a new light.'
Christopher Caldwell, Financial Times
`Timely.. elegant and pithy.'
Harold James, Finance and Development,
6: Monopoly No More
7: Dollar Crash