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 soon may 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 currency — which would depress American 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 over the course of the 20th century. He shows how the greenback dominated internationally in the second half of the century for the same reasons — and in the same way — 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 the coming changes will necessarily be sudden and dire — or that the dollar is doomed to lose its international status. Challenging the presumption that there is room for only one true global currency — either the dollar or something else — Eichengreen 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.
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.
The squeeze is on – The Economist
"Exorbitant Privilege is a book for anyone who has been perplexed why, despite the frequent predictions of the dollar's demise over the last fifty years, it has managed to maintain its position as the world's pre-eminent reserve currency. The book includes both a lively historical account of the dollar's role in the international monetary system and an incisive and balanced discussion of future challenges."
— Liaquat Ahamed, author of Lords of Finance
"When everyone from Brazil's leader to Sarah Palin questions the dollar's status as a reserve currency, it is time for an expert to sort out the truth from the hyperbole. Barry Eichengreen performs this service with unwavering clarity."
— Sebastian Mallaby, Council on Foreign Relations
"Professor Eichengreen has written a truly superb book on the role and global standing of the dollar—past, present and future. Those exposed to the evolution of the globally 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
"Eichengreen is the master of international money in history and its troubles. Exorbitant Privilege is a fine account of whence it came and a judicious survey of where it might go."
— James K. Galbraith, author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too
"Barry Eichengreen again demonstrates his ability to integrate economic history and theory with political analysis in order to illuminate the critical issues of international finance. The timely and accessible book is must reading for all concerned with the prospective balance of international power—financial, economic and political—in a multi-polar world."
William H. Janeway, Warburg Pincus
"Barry Eichengreen's book couldn't be more timely . . . Elegant and pithy."
— Finance & Development, IMF.org