The dollar is the worst reserve currency — until you consider the alternatives
It’s been fashionable as of late to predict the end of the dollar’s hegemony as a reserve currency. And, to be sure, the U.S. performance in recent years does not recommend the dollar as a great store of value. World politics is a relarive game, however, so while the dollar might have its problems, what ...
It's been fashionable as of late to predict the end of the dollar's hegemony as a reserve currency. And, to be sure, the U.S. performance in recent years does not recommend the dollar as a great store of value.
It’s been fashionable as of late to predict the end of the dollar’s hegemony as a reserve currency. And, to be sure, the U.S. performance in recent years does not recommend the dollar as a great store of value.
World politics is a relarive game, however, so while the dollar might have its problems, what are the alternatives? China might have its fiscal house in order, but the renminbi is not fully convertible. The yen is appreciating, but Japan’s economy is too small (and its growth opportunities are not exactly robust).
The only viable alternative is the euro. But as Landon Thomas Jr. story in the New York Times suggests, that currency’s odd political status is creating economic fissures within the Eurozone. The key paragraph:
For some of the countries on the periphery of the 16-member euro currency zone — Greece, Ireland, Italy, Portugal and Spain — this debt-fired dream of endless consumption has turned into the rudest of nightmares, raising the risk that a euro country may be forced to declare bankruptcy or abandon the currency.
As the story makes clear, the odds of this happening are still small. Because they are not trivial, however, uncertainty surrounding the euro will remain high. Which means that it is not going to displace the dollar anytime soon.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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