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The Future of the Dollar

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  • Richard N. Cooper

    (Harvard University)

Abstract

The global financial and economic crisis and prospects for large and sustained budget deficits in the United States have prompted countries with massive dollar holdings such as China to consider alternatives to the US dollar. These countries realize that they would suffer losses if inflation eroded the value of the dollar securities they own. Are there feasible alternatives to the US dollar as a widely used international currency? Richard Cooper looks at possible alternatives--major currencies in use, such as the euro, the yen, the pound, or even the Chinese renminbi, and a synthetic currency such as the special drawing rights of the International Monetary Fund--and concludes that no other currency seems likely to overtake the US dollar, and it is likely to remain the dominant international currency for a long time. He notes that international use of the euro will grow, perhaps even more rapidly than that of the dollar for some years, but because of limitations on issuers and financial markets, the euro is not likely to displace the dollar. In a growing world economy, there is room for both. A deliberate international decision to create an international currency could displace the dollar, but that task would be formidably difficult. The prospective gains from such a creation would have to be sufficiently great to make governments willing to overcome the practical difficulties and to adopt the complementary policies (mainly concerning exchange rates) necessary to give a new international currency a compelling advantage over present arrangements.

Suggested Citation

  • Richard N. Cooper, 2009. "The Future of the Dollar," Policy Briefs PB09-21, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb09-21
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    Cited by:

    1. Zimmermann, Thomas A., 2010. "The dangerous rise of economic interventionism," MPRA Paper 37262, University Library of Munich, Germany.
    2. Yung Chul Park, 2010. "RMB Internationalization and Its Implications for Financial and Monetary Cooperation in East Asia," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(2), pages 1-21, March.
    3. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
    4. John Ryan, 2009. "China and the Global Roles of Currencies," Working Papers 2009.8, International Network for Economic Research - INFER.
    5. Körner, Finn Marten, 2011. "An equilibrium model of 'global imbalances' revisited," Violette Reihe: Schriftenreihe des Promotionsschwerpunkts "Globalisierung und Beschäftigung" 33/2011, University of Hohenheim, Carl von Ossietzky University Oldenburg, Evangelisches Studienwerk.
    6. T.P. Bhat, 2013. "Yuan: Towards an International Reserve Currency," India Quarterly: A Journal of International Affairs, , vol. 69(3), pages 249-263, September.
    7. Robin Pope & Reinhard Selten & Johannes Kaiser & Sebastian Kube & Jürgen Hagen, 2012. "Exchange rate determination: a theory of the decisive role of central bank cooperation and conflict," International Economics and Economic Policy, Springer, vol. 9(1), pages 13-51, March.
    8. Pedro Bação & António Portugal Durate & Mariana Simões, 2013. "The International Monetary System in Flux: Overview and Prospects," GEMF Working Papers 2013-07, GEMF, Faculty of Economics, University of Coimbra.
    9. Robert N McCauley & Catherine R Schenk, 2014. "Reforming the international monetary system in the 1970s and 2000s: would an SDR substitution account have worked?," BIS Working Papers 444, Bank for International Settlements.
    10. McCauley, Robert N., 2015. "Does the US dollar confer an exorbitant privilege?," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 1-14.
    11. Michael D. Bordo & Robert N. McCauley, 2019. "Triffin: Dilemma or Myth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(4), pages 824-851, December.
    12. Michael D. Bordo & Robert N. McCauley, 2016. "The Current Account Version of the Triffin Dilemma," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(2), pages 171-182, June.
    13. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
    14. Meixing Dai, 2013. "In search of an optimal strategy for yuan’s real revaluation," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(1), pages 29-46, February.
    15. Ryan, John, 2009. "China and the Reserve Currency Question," MPRA Paper 18218, University Library of Munich, Germany.
    16. Friedrich Wu & Rongfang Pan & Di Wang, 2010. "Renminbi's Potential to Become a Global Currency," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(1), pages 63-81, January.
    17. Guido Montani, 2011. "Money and Finance as Global Public Goods," SAGE Open, , vol. 1(3), pages 21582440114, October.

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