“[I]n the aftermath of the financial crisis, U.S. policies and a dysfunctional international monetary system have paradoxically strengthened the dollar’s importance.”
This is from a description of Eswar Prasad’s important new book, The Dollar Trap (Princeton). From the website:
The U.S. dollar has reigned supreme as the world’s dominant reserve currency for nearly a century. But now the dollar’s dominance is under threat.
The near-collapse of the U.S. financial system in 2008, the high and rising level of U.S. government debt, and political gridlock in Washington have shaken confidence in the U.S. economy and the safety of its government debt. Other currencies such as China’s renminbi are staking their own claims to become reserve currencies, adding to speculation that the dollar’s glory days are coming to an end.
The Dollar Trap overturns this conventional wisdom. The book shows how, in the aftermath of the financial crisis, U.S. policies and a dysfunctional international monetary system have paradoxically strengthened the dollar’s importance.
In international finance, it turns out, everything is relative. Ultimately, there is no good answer to this question: If not the dollar, then what? That is why, despite all its flaws, the dollar will remain the ultimate safe haven currency.