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Exorbitant Privilege and the Sustainability of US Public Debt

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Listed:
  • Jason Choi
  • Duong Q. Dang
  • Rishabh Kirpalani
  • Diego J. Perez

Abstract

We study the extent to which the perceived cost of losing the exorbitant privilege the US holds in global safe asset markets sustains the safety of its public debt. Our findings indicate that the loss of this special status in the event of a default significantly augments the debt capacity for the US. Debt levels would be up to 30% lower if the US did not have this special status. Most of this extra debt capacity arises from the loss of the convenience yield on US Treasuries, which makes debt more expensive following its loss and provides strong incentives to repay debt.

Suggested Citation

  • Jason Choi & Duong Q. Dang & Rishabh Kirpalani & Diego J. Perez, 2024. "Exorbitant Privilege and the Sustainability of US Public Debt," NBER Working Papers 32129, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32129
    Note: AP EFG IFM ME
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    JEL classification:

    • F0 - International Economics - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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