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2021 | Buch

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The Global Currency Power of the US Dollar

Problems and Prospects

verfasst von: Anthony Elson

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft" , Springer Professional "Technik"

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Über dieses Buch

This book explains how the US dollar serves as the primary reserve currency for the international financial system and assesses its prospects for the future. The book provides an analysis of the main factors that have given rise to the global currency power of the dollar and the key benefits that have accrued to both the United States and other countries from this arrangement. It then considers the growing costs that can be associated with the dollar-centered reserve system and the prospects for the medium-term in terms of its potential threats to global financial stability. In the light of these considerations, the book examines three alternative currency arrangements that could address some or all of the defects associated with the global currency power of the dollar. These include a shift to a multi-reserve currency system, an enhancement of the IMF’s role as an international lender of last resort and provider of global “safe” assets, and the introduction of central bank digital currencies.

Inhaltsverzeichnis

Frontmatter

Chapter 1. The US Dollar as a Global Currency

Abstract

This chapter provides a summary overview of the contents of the book, beginning with a discussion of the various ways in which the dollar serves as the de facto currency of the global economy. The chapter identifies the main factors that account for this dominance of the dollar, as well as the benefits, costs and growing risks of this arrangement for global financial stability. Possible reforms of the current dollar-dominated reserve system are highlighted that are discussed in the closing chapters of the book.

Anthony Elson

Chapter 2. The Origins of the Global Currency Power of the US Dollar

Abstract

This chapter focuses on the historical foundation of the global currency power of the dollar that was first recognized in the Bretton Woods Agreement which established the International Monetary Fund in 1944. The operations and functions of the IMF are briefly discussed, as well as a number of efforts made by the advanced countries during the 1960s to maintain the Bretton Woods system of fixed exchange rates pegged to the dollar in the face of threats arising from instabilities in the US economy. The transition to the current post-Bretton Woods era during the mid-1970s is then discussed, in which the dollar has continued to function as the de facto central reserve currency up until the present day.

Anthony Elson

Chapter 3. The Growth in the Role of the Dollar as a Global Currency Power

Abstract

This chapter focuses on the expansion in the role of the dollar as the dominant reserve currency following the break-down of the Bretton Woods system. This expansion reflected both the hegemonic power of the United States as the leading economy in the international system, as well as the decisions of countless traders and investors to use the dollar as the most convenient unit of account and medium of exchange for the conduct of international trade and financial transactions. The unique role of the United States as a global financial intermediary within the international financial system is also examined, along with the factors that have given rise to its “exorbitant privilege” within that system.

Anthony Elson

Chapter 4. The Benefits of the Dollar System to the United States and the Rest of the World

Abstract

This chapter considers the various benefits for the United States and the rest of the world that can be ascribed to the dollar-dominated international reserve system. Private traders and investors in the United States have gained from the convenience of using the dollar in their cross-border transactions, while the US government has benefitted from the absence of pressure to eliminate its external current account deficit given the strong demand by other countries for its Treasury securities that have been used to finance it. The rest of the world has gained from efforts of the United States to maintain a liberal international economic order and a stable anchor of sustained economic growth and relatively low inflation over the long term.

Anthony Elson

Chapter 5. The Defects of the Dollar-Centered Global Financial System

Abstract

This chapter analyzes the various costs for other countries and the risks to global financial stability associated with the current dollar-dominated international financial system. Discussion focuses initially on the volatility of international capital flows that can be identified with the global financial cycle and private traders’ responses to changes in Federal Reserve policy. The chapter also considers the costs for emerging market economies of accumulating US government debt securities (“safe” assets) as a self-defense mechanism against capital flow volatility because of defects in the Global Financial Safety Net. The chapter closes with a discussion of the problem of global imbalances and the absence of an institutional mechanism to reduce these as a threat to global financial stability.

Anthony Elson

Chapter 6. Prospects for the Dollar

Abstract

This chapter examines the prospects for the dollar in the light of developments related to the recent rise of anti-globalist political forces in the US political system and the sharp increase in public debt associated with the government’s response to the Covid-19 crisis. The chapter considers how the first factor has represented a sharp break from the long-standing US government support for the liberal international economic order and may weaken future domestic support for that stance. The second factor has exposed the government to potential problems of debt management and fiscal sustainability over the medium-to-long term that could threaten global financial stability. The chapter considers this issue within the framework of “debt dynamics”.

Anthony Elson

Chapter 7. Possible Reforms of the Dollar-Centered Reserve System

Abstract

This is the first of three chapters dealing with possible reforms of the current international monetary system with a view to alleviating the problems and defects presented in the previous two chapters. Specifically, this chapter examines the prospects for a shift over time to a multipolar reserve system comprising the dollar, euro and renminbi. While recognizing that some changes in this direction have already taken place, the chapter considers the key measures by which these currencies fall behind the dollar as reserve currencies and identifies the principal burdens for the euro and renminbi to overcome before such a shift could be accomplished.

Anthony Elson

Chapter 8. The IMF and Reform of the Dollar-Centered Reserve System

Abstract

This chapter considers how a strengthened IMF could play a more central role in the international monetary system by reforms in its financial and operational responsibilities. The chapter examines, in particular, the changes that could be made to allow the IMF’s global reserve asset (SDRs or Special Drawing Rights) to become over time the principal reserve asset of the international monetary system, as intended when the Bretton Woods Agreement was revised in 1978. The chapter notes that this kind of reform would require strong agreement among the major shareholders in the Fund to overcome likely resistance on the part of the United States.

Anthony Elson

Chapter 9. The Dollar and Digital Currencies

Abstract

This chapter examines the challenges for the dollar as a global reserve currency arising from the advent of digital currencies. Even though digital currencies are a relatively recent phenomenon, the chapter highlights the enormous potential they hold for improving cross-border payments. Stablecoins such as Libra (now Diem) and a few central bank digital currencies are likely to be in circulation by next year and will challenge the dollar in different ways. Global stablecoins could easily reach national and international scale if backed by a large Fintech firm. The chapter also discusses the prospects for a composite of central bank digital currencies (in the form of a “Synthetic Hegemonic Currency”) to replace the dollar as the main global reserve currency.

Anthony Elson

Chapter 10. Conclusions

Abstract

This chapter brings together the main conclusions of the previous chapters into a synthetic view of the global currency power of the dollar, with an assessment of the pros and cons of the current dollar-centered international reserve system and its prospects for the medium term. The chapter summarizes three scenarios for the evolution of the current international monetary system, the likelihood of which should become clearer over the next 5–10 years. In reviewing the prospects for a transition to a multipolar reserve system, the chapter considers in particular the challenges that face the renminbi in reaching equal status with the dollar as a global reserve currency.

Anthony Elson

Backmatter

Titel: The Global Currency Power of the US Dollar
verfasst von: Anthony Elson
Verlag: Springer International Publishing
Electronic ISBN: 978-3-030-83519-4
Print ISBN: 978-3-030-83518-7
DOI: https://doi.org/10.1007/978-3-030-83519-4