## The Dollar’s Primacy ## Source details **Canonical URL:** [The Dollar’s Primacy](https://www.imf.org/en/publications/fandd/issues/2022/03/book-review-dollar-primacy-joyce) ## Other formats - [Markdown version](/en/publications/fandd/issues/2022/03/book-review-dollar-primacy-joyce/index.md) - [Structured JSON version](/en/publications/fandd/issues/2022/03/book-review-dollar-primacy-joyce/index.json) - [Bundle manifest](/en/publications/fandd/issues/2022/03/book-review-dollar-primacy-joyce/bundle-manifest.json) ## Bibliographic details - Authors: JOSEPH JOYCE - Published: March 1, 2022 --- ### Background and context - When the COVID-19 pandemic triggered a “risk-off” flight of capital in the spring of 2020, private investors and financial institutions turned to US Treasury bonds as the alternative “safe asset.” - The retreat from financial markets was soon reversed, in part because of the Federal Reserve’s formidable response to the threat of a global financial collapse. - Fifty years after President Richard Nixon cut the link between gold and the dollar reserves held by foreign central banks, the US dollar continues to play a predominant role in the global financial system, with enormous spillover effects for US monetary policy. - Author and reviewer: JOSEPH P. JOYCE, professor of economics, Wellesley College; review of Anthony Elson’s The Global Currency Power of the US Dollar: Problems and Prospects. ### Reasons for the dollar’s predominance - Historical roots: emergence of the United States as the world’s largest economy after World War II. - Market structure: US financial markets are unequaled in terms of breadth and liquidity, which reinforces the use of the dollar in financial transactions. - Network effect: the widespread usage of the dollar provides an incentive for new users also to adopt it. ### Benefits of a dollar-based system - US international traders and investors avoid the cost of foreign exchange transactions and exchange rate risk. - The US government can continue to run fiscal deficits with low interest rates because of the demand for US securities. - The cutoff of access to the dollar-based global banking network through sanctions serves as a valuable foreign policy tool. ### Vulnerabilities and risks - Dependence on fiscal deficits to supply safe assets to the world creates a “new Triffin dilemma.” - Raises the question of whether there is a threshold of debt that would trigger concerns about the sustainability of the US debt. - These concerns may become manifest if interest rates rise in 2022 as the Federal Reserve responds to inflation. - Any increases in US interest rates will raise the cost to foreign governments of refinancing their external debt. ### Potential alternatives and their constraints - Multiple reserve currency system: - A system including the euro and the Chinese yuan could have advantages over the existing dollar-based system. - A number of conditions must be met before those currencies gain more acceptance, and the pace of adaptation and change is expected to be slow. - Expanded use of the IMF’s Special Drawing Rights: - Depends on reforms in the IMF’s operations and its voting structure, which must be negotiated. - Digital currencies: - Central banks are actively exploring the use of electronic means of payment. - If a system of payments for international transactions emerges that is seen as safe, stable, and not dependent on any one country, then the dollar’s central role may be replaced by a different form of money altogether. *Overview based on The Global Currency Power of the US Dollar: Problems and Prospects, reviewed in F&D Magazine by JOSEPH P. JOYCE.* --- ## Content in this bundle - **استعراض الكتب** - [استعراض الكتب (Markdown version)](/-/media/files/publications/fandd/article/2022/march/ar/book-joyce-p66.pdf.md){rel="alternate" type="text/markdown"} - [استعراض الكتب (PDF)](/-/media/files/publications/fandd/article/2022/march/ar/book-joyce-p66.pdf){rel="external" type="application/pdf"} - **La suprématie du dollar** - [La suprématie du dollar (Markdown version)](/-/media/files/publications/fandd/article/2022/march/fr/book2.pdf.md){rel="alternate" type="text/markdown"} - [La suprématie du dollar (PDF)](/-/media/files/publications/fandd/article/2022/march/fr/book2.pdf){rel="external" type="application/pdf"} - **The Dollar's Primacy** - [The Dollar's Primacy (Markdown version)](/-/media/files/publications/fandd/article/2022/march/joyce-books.pdf.md){rel="alternate" type="text/markdown"} - [The Dollar's Primacy (PDF)](/-/media/files/publications/fandd/article/2022/march/joyce-books.pdf){rel="external" type="application/pdf"} - **Книжное обозрение – Финансы и развитие – Переосмысление бюджетных основ – март 2022 года** - [Книжное обозрение – Финансы и развитие – Переосмысление бюджетных основ – март 2022 года (Markdown version)](/-/media/files/publications/fandd/article/2022/march/ru/book-2.pdf.md){rel="alternate" type="text/markdown"} - [Книжное обозрение – Финансы и развитие – Переосмысление бюджетных основ – март 2022 года (PDF)](/-/media/files/publications/fandd/article/2022/march/ru/book-2.pdf){rel="external" type="application/pdf"} - **La primacía del dólar ● Finanzas y Desarrollo ● Marzo de 2022** - [La primacía del dólar ● Finanzas y Desarrollo ● Marzo de 2022 (Markdown version)](/-/media/files/publications/fandd/article/2022/march/sp/books-page66-joyce.pdf.md){rel="alternate" type="text/markdown"} - [La primacía del dólar ● Finanzas y Desarrollo ● Marzo de 2022 (PDF)](/-/media/files/publications/fandd/article/2022/march/sp/books-page66-joyce.pdf){rel="external" type="application/pdf"} - **美元的主导地位** - [美元的主导地位 (Markdown version)](/-/media/files/publications/fandd/article/2022/march/zh/book2-currency.pdf.md){rel="alternate" type="text/markdown"} - [美元的主导地位 (PDF)](/-/media/files/publications/fandd/article/2022/march/zh/book2-currency.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2022/03/book-review-dollar-primacy-joyce_