Book

The Unloved Dollar Standard

Ronald I. McKinnon

Published in print December 2012 | ISBN: 9780199937004
Published online January 2013 | e-ISBN: 9780199980703 | DOI: https://dx.doi.org/10.1093/acprof:oso/9780199937004.001.0001
The Unloved Dollar Standard

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An accident of history, the international dollar standard has greatly facilitated multilateral trade and exchange since 1945. But beginning in 1971, erratic U.S. monetary and exchange rate policies have upset the world’s macro economy so as to make foreigners unhappy. Paradoxically, the asymmetrical nature of the dollar standard also makes Americans unhappy because they cannot control their own exchange rate. Although nobody loves the dollar standard, it is a remarkably robust institution that is too valuable to lose and too difficult to replace. Today, rehabilitating the dollar standard requires that American monetary and financial policies be “internationalized”: the Federal Reserve should aim for greater exchange rate stability by adjusting interest rates to prevent runs for or against the dollar, while the U.S. Treasury aims fiscal policy to balance exports and imports. [21]China, now the world’s largest exporter and creditor country, has a critical role to play in sustaining the dollar standard. Because the renminbi is not much accepted internationally, China’s foreign trade is mainly invoiced in dollars, and interbank payments are cleared in dollars. So helping to stabilize the world dollar standard is in China’s, as well as America’s (and the world’s), own best interests. But how the now dominant “G-2” rationalize their mutual saving imbalances and debtor-creditor relationship, with China holding trillions of dollars of official exchange reserves, is the key question for sustainability.

Keywords: dollar standard; emerging markets; capital controls; interest differentials; exchange rates; carry trades; China

Book.  180 pages.  Illustrated.

Subjects: Financial Markets

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Table of Contents

Introduction in The Unloved Dollar Standard

Chapter

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The Dollar as a Worldwide Nominal Anchor in The Unloved Dollar Standard

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The Slipping Anchor, 1971–2008 in The Unloved Dollar Standard

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The Bernanke Shock, 2008–12 in The Unloved Dollar Standard

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