For more than half a century, the 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. This singular role of the
dollar 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." But now,
with U.S. budget deficits extending as far as the eye can see, holding dollars
is viewed as a losing proposition. Some say that the dollar may soon cease to
be the world's standard currency - which would depress U.S. living standards
and weaken the country's international influence.In Exorbitant Privilege, one
of our foremost economists, Barry Eichengreen, traces the rise of the dollar to
international prominence. He shows how the greenback dominated internationally
in the second half of the 20th century for the same reasons that 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 coming changes need be sudden and dire -
or that the dollar is doomed tolose its international status. Challenging the
presumption that there is room for only one true global currency, Eichengreen
shows that several currencies have regularly shared this role. What was true in
the distant past will be true, once again, in the not-too-distant future. The
dollar will lose its international currencystatus, 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. Incisive,
challenging and iconoclastic, Exorbitant Privilege, is a fascinating analysis
of the changes that lie ahead. It is a challenge, equally, to those who warn
that the dollar is doomed and to those who regard its continuing dominance as
inevitable.
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