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The decline of the dollar: the loss of the exorbitant privilege

Ryan, John (2011) The decline of the dollar: the loss of the exorbitant privilege. In: UACES Exchanging Ideas on Europe , 5 September 2011, Cambridge, England.

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Abstract

While the Eurozone deals with its crisis of confidence because of the management of its Fiscal and Monetary governance system. The US economy and currency problems seemed to be ignored by the bond markets. The Dollar's resilience has been questioned at least three times in the post-war era - in the 1960s as gold reserves ran short, amid Japan's rise in the 1980s, and during the emergence of the Euro in the late 1990s. The Dollar has always rebounded in a reflection of US economic prowess, unrivalled liquidity and stability of US financial markets and scale benefits of the Dollar in global transactions. The soaring US debt now risks undermining the Dollar and America's enjoyment of its exorbitant privilege, jeopardising the global economy. The US Federal government has taken on massive additional contingent liabilities through its bail out of the US financial system. There is little doubt that the Federal authorities will choose the inflation and currency depreciation route over the default route. China has been implementing a diversification and risk minimizing strategy by purchasing other assets such as gold and more recently further purchases of Eurozone bonds. Confidence in the health of the US economy, and therefore the Dollar, could plunge even further because of continued large US current-account deficits, an unstable banking sector, expansionist monetary policy and a Financial Regulation system that is lacking in credibility. The potential geopolitical implications of such a projected shift are immense.

Item Type: Conference or Workshop Item (Other)
Official URL: http://www.uaces.org/events/conferences/cambridge/
Additional Information: © 2011 the Author
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G0 - General
Sets: Departments > International Relations
Research centres and groups > Centre for International Studies (CIS)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 22 Mar 2012 15:19
URL: http://eprints.lse.ac.uk/42749/

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