The Global Dollar: Trends and Issues in Official and Private International Finance

At the close of nearly a decade of managed floating exchange rates, the U.S. dollar remains the world's primary international reserve asset and vehicle currency. Some underlying macroeconomic characteristics of the United States as the major reserve currency country have undergone a marginal diminution relative to other emerging reserve centers, and noticeable currency diversification of private and official international liquidity has taken place. The underlying microfoundations of dollar financial markets remain dominant, however, and continue to underpin the U.S. currency in its reserve role. In spite of efforts to introduce officially sponsored multiple currency units, such as the International Monetary Fund's Special Drawing Right, into a larger role, these currency composites have met with only limited success to date. One must look primarily to private markets for the future evolution of the international financial system, and on this basis it is likely that the dollar will remain most important. The decade of the 1970s also witnessed a trend toward privatization of international financial markets in general, at the expense of the role formerly played by official lending agencies. This environment also will likely reinforce the role of market forces in determining the future course of the world monetary system.