Monseigneur d’Estaing Says the United States, Holder of the World’s Currency Reserve, Has Exorbitant Privilege

Monseigneur d’Estaing Says the United States, Holder of the World’s Currency Reserve, Has Exorbitant Privilege

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Among the legacies of the Sixties – the hippies, the memory of the war in Vietnam and Hitchcock's Psycho – there is a famous phrase pronounced by Valéry Giscard d'Estaing, the then French Minister of Finance. Referring to the United States’ monetary position in the post-World War world, he coined the term ‘exorbitant privilege’. Those words were uttered a long time ago. They still matter today.
The exorbitant privilege Monseigneur d’Estaing talked about to was the fact that the US - then just as now – is the holder of the world’s currency reserve and, as such, enjoys a special status worldwide. The United States, for instance, can print money and accumulate debt without facing the problems that other would encounter. After the financial crisis struck in 2007 money fled to the US – the epicenter of the financial earthquake – rather than away from it: despite the Lehman debacle, dollars were still a safe bet.
The debate on Washington’s responsibilities toward the world and the possibility that the dollar’s supremacy might one day be over has been going on for a long time. The latest entry in the literature that calls for an end to the dollar hegemony was made last week by Justin Yifu Lin, a former chief economist at the World Bank and now advisor to the Chinese government. Talking to the Bruegel, a Brussels-based think tank, he reiterated his belief that a supranational currency is needed because “the dominance of the greenback is the root cause of global financial and economic crises." In different occasions, Mr Lin had explained that what he means by ‘supranational currency’ is paper gold – a currency pegged to gold which could be used by states around the world.
It is not clear whether his plan his realistic. Tatiana Fic, a res...

... middle of paper ... was why, Mr Bergsten contended, “countries throughout the world are expressing their admiration for the euro by seeking to join or emulate it.” Ten years later those words resemble a prehistoric fossil: terms commonly attached to the euro are now trap, disaster, mistake, failure. But the euro is not dead, and according to Dr Eichengreen it is not likely to be gone anytime soon – as long as Europeans are willing to tackle their debt and work out a system to spread risk among the Union’s members.
The second challenger, the Chinese currency, is on its way to internationalization, even though most experts say China still has a long way to go before its currency will have a clout similar to that of the dollar. According to Dr Fic, “the dollar remains one of the major world currencies,” but “the relative role of the euro, and renminbi is likely to increase over time.”

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