Tag: Dollar

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.