Feature

The dollar’s global role is a drag

Having a widely available dollar is a common good, “but like all common goods, it can be gamed,” said Michael Pettis at ForeignPolicy.com.

Michael Pettis
ForeignPolicy.com

It’s time to abandon the dollar as the world’s reserve currency, said Michael Pettis. U.S. politicians, fearful of triggering a “decline in the power of the U.S. economy,” tend to dismiss the idea. But in fact, “a world without the dollar would mean faster [U.S.] growth and less debt.” We like to think that maintaining the greenback as the reserve currency offers privileges, allowing the U.S. to consume and borrow cheaply and keep interest rates low. But those privileges have become burdens.

Allowing foreign countries to buy up dollars actually “forces Americans to consume beyond their means.” By buying dollars, foreign countries push down the values of their own currencies, generating trade surpluses for them and bigger trade deficits for us. “The whole world realizes this state of play,” save the U.S. Having a widely available dollar is a common good. “But like all common goods, it can be gamed.”

The rest of the world will “never voluntarily give up the trade advantages of hoarding dollars.” The U.S. should force the issue, for the sake of our own country’s long-term growth.

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