Daniel Drezner:

If [an international reserve currency] does happen, however, the United States will suffer a serious loss of standing and, oh yes, a much harder budget constraint.  And whatever happens, it would be difficult to call the dollar a top currency anymore.  I think we have clearly crossed some threshhold where the dollar is now a negotiated currency - and some of the negotiating partners are pretty hostile to U.S. hegemony. 

I don't know enough about the relationship between reserve currencies, account deficits, government, and power - but I know enough to know that this would likely be a huge blow to America's hegemony. The dollar's privileged status is a major part of what allows us to finance our military and our debt. Drezner points out how unlikely it is that the dollar will be replaced - but with these high-level comments by the Russians and the Chinese, coupled with the fundamental uncertainty about the dollar going forward, and the increasing nonpolarity of world power, it suggests that the dollar may be losing it's privileged status. It will not necessarily be overtaken by an international reserve currency for the reasons Drezner states, but it has become - at least in this moment of our weakness - a negotiated currency.

Comments

Ron · 2009-03-27

America will need a new currency before Geithner and the politicians are finished expanding the debt and destroying the dollar but the solution is a gold backed currency free of government manipulation. The Campaign to Cancel the Washington National Debt by 12/21/2012 through constitutional amendment begins. See our facebook page at http://www.facebook.com/group.php?gid=67594690498&ref=ts

We are also planning to have a booth at FreedomFest 2009, the world’s largest gathering of free minds! July 9–11 http://www.freedomfest.com in Las Vegas. Ron

Tags: Daniel Drezner, Dollar, International reserve currency

This entry was posted on Friday, March 27th, 2009 and is filed under Economics. Comments are closed; the conversation is kept as it was.