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The Dollar and its Discontents

  • Olivier Jeanne

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18143.

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Date of creation: Jun 2012
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Publication status: published as Jeanne, Olivier, 2012. "The dollar and its discontents," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 1976-1989.
Handle: RePEc:nbr:nberwo:18143
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  1. N/A, 2011. "Reform of the International Monetary System," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(2), pages 185-193, May.
  2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," CEPREMAP Working Papers (Docweb) 0606, CEPREMAP.
  3. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
  4. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
  5. Joseph E. Gagnon, 2012. "Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks," Working Paper Series WP12-5, Peterson Institute for International Economics.
  6. Rodrik, Dani, 2006. "The Social Cost of Foreign Exchange Reserves," CEPR Discussion Papers 5483, C.E.P.R. Discussion Papers.
  7. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," NBER Working Papers 11366, National Bureau of Economic Research, Inc.
  8. Aizenman, Joshua & Jinjarak, Yothin & Park, Donghyun, 2011. "International reserves and swap lines: Substitutes or complements?," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 5-18, January.
  9. 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.
  10. Edwin M. Truman, 2010. "The G-20 and International Financial Institution Governance," Working Paper Series WP10-13, Peterson Institute for International Economics.
  11. Kjetil Storesletten & Fabrizio Zilibotti & Zheng Song, 2009. "Growing like China," 2009 Meeting Papers 912, Society for Economic Dynamics.
  12. Maurice Obstfeld, 2011. "International Liquidity: The Fiscal Dimension," NBER Working Papers 17379, National Bureau of Economic Research, Inc.
  13. Carroll, Christopher D. & Jeanne, Olivier, 2009. "A tractable model of precautionary reserves, net foreign assets, or sovereign wealth funds," CFS Working Paper Series 2009/15, Center for Financial Studies (CFS).
  14. Sebastian Edwards, 1985. "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.
  15. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, March.
  16. 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.
  17. Peter B. Kenen, 2010. "The Substitution Account as a First Step Toward Reform of the International Monetary System," Policy Briefs PB10-6, Peterson Institute for International Economics.
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