Looking for something to sooth me to sleep the other night, I cracked Barry Eichengreen's Exorbitant Privilege, about the dominance of the dollar as a world currency and its inevitable eventual decline. Ha! for sweet repose, I would better have chosen a slasher flic. Eichengreen offers a horror story but he tells it with almost effortless ease: how grandly we perch on top of the world currency system, how much solace we draw from our privileged position, and how easily, and quickly, we might lose it all.*
We came by our privilege honestly: by the end of World War II we were the only substantial currency anywhere (though the British did not quite get the message until the Suez debacle of 1956). We stay aloft now through a devils brew of inertial and kinetic force. In any event, we get to push other people around do not get pushed around; we have everybody else in the world on a don't-call-us-we'll-call-you basis. A moralist might say that our very success harbors the seeds of its own demise: our very preeminence has led us to go slack, to get away with stuff because we can get away with it and not for any better reason. In any event, sooner or later the gas will go out of the bag, maybe with agonizing slowness, perhaps with a deafening "pop." Either way it won't be pretty: it will make our lives tougher and more demanding than any native-born American has ever known. The sheer economic consequences alone or sobering enough. And although he doesn't dwell on them, it is clear from Eichengreen's narrative that the political consequences may be far worse: if, as they say, no politician ever survived a bad harvest, what will become of the person who presides over a currency collapse.
Eichengreen's book has been extensively reviewed elsewhere and I won't burden the record with repetition. but I would like to pose a question. Stipulate that our present world financial order is held together with piano wire and glue (does anyone really think otherwise?). Stipulate that the prospect of gold as an alternative is only fanciful (though perhaps not quite as fanciful as it may seem its sharpest critics). Stipulate to all that but then ask--okay, Mr. Wiseguy, suppose you were sovereign: just what of monetary order would you propose? Is there a coherent system that can be imagined or are we doomed forever to juggle hot knives on the edge of a precipice? No, I was wrong to call you a Wiseguy. But the question is advanced in earnest. Stipulate that we creep interminably along the edge of the abyss, do we have any other choice?
*Previous foolish assertion excised. See Stephan's comment below. and Buce's response.