The International Dollar Standard and Sustainability of the U.S. Current Account Deficit
April 2001 For more than 20 years, the United States has run current-account deficits with the rest of the world—and is now the world’s largest international debtor. Because the world is on a dollar standard, the United States is unique in having a virtually unlimited international line of credit which is largely denominated in its own currency, i.e., dollars. In contrast, foreign debtor countries must learn to live with currency mismatches where their banks’ and other corporate international liabilities are dollar denominated but their assets are denominated in the domestic currency. As these mismatches cumulate, any foreign country is ultimately forced to repay its debts in order to avoid a run on its currency. But however precarious and over-leveraged the financing of individual American borrowers—including American banks, which intermediate such borrowing internationally—might be, they are invulnerable to dollar devaluation. In effect, America’s collective current-account deficits are sustainable indefinitely. Working Papers Index
|Date of creation:||Apr 2001|
|Contact details of provider:|| Postal: Ralph Landau Economics Building, Stanford, CA 94305-6072|
Web page: http://www-econ.stanford.edu/econ/workp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald I. McKinnon, 1996. "The Rules of the Game: International Money and Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133180, January.