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The Dollar and its Discontents

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  • Jeanne, Olivier

Abstract

Has the US dollar delivered the benefits that the rest of the world is expecting from its holdings of international liquidity? US government debt has been liquid and safe, and it is supplied in sufficient quantity. But it has given a low return to the countries that accumulated the most reserves, especially when those returns are measured in terms of the countries' own consumption. I argue in this paper that the countries that accumulate the most reserves should expect a low return in terms of their own consumption, and that there is little that international monetary reform can do to change that fact.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9007.

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Date of creation: Jun 2012
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Handle: RePEc:cpr:ceprdp:9007

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Keywords: dollar; foreign exchange reserves; international monetary system; Triffin dilemma;

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References

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  1. Sebastian Edwards, 1986. "On the Interest Rate Elasticity of the Demand for International Reserves: Some Evidence from Developing Coutries," NBER Working Papers 1532, National Bureau of Economic Research, Inc.
  2. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2009. "Growing like China," CEPR Discussion Papers 7149, C.E.P.R. Discussion Papers.
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  7. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
  8. Carroll, Christopher D & Jeanne, Olivier, 2009. "A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds," CEPR Discussion Papers 7449, C.E.P.R. Discussion Papers.
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  10. Aizenman, Joshua & Jinjarak, Yothin & Park, Donghyun, 2010. "International reserves and swap lines: substitutes or complements?," Santa Cruz Department of Economics, Working Paper Series qt04v2q5s7, Department of Economics, UC Santa Cruz.
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  14. Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
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  16. Robert N McCauley & Patrick McGuire, 2009. "Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging," BIS Quarterly Review, Bank for International Settlements, December.
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Cited by:
  1. Aizenman, Joshua & Dekle, Robert & Lothian, James R., 2012. "Overview of the special issue on “Policy Implications of and Lessons from the Global Financial Crisis”," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 1971-1975.

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