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Why the World needs a Reserve Asset with a Hard Anchor
Frontiers of Economics in China (2017)
  • Warren Coats
  • Dongsheng Di, Renmin University of China
  • Yuxuan Zhao
From the 1970s, the global currency system has two features: the use of one or a few sovereign currencies as the global reserve asset and the floating exchange rate regime between major currencies.This paper points out that the costs of the dollar’s use as an international reserve currency exceed the benefits for both the US and the rest of the world. These costs include the exporting of American manufacturing as a byproduct of its current account deficit needed to supply its currency to the rest of the world. In addition to the detriment to trade from unpredictable exchange rate fluctuations, the termination of the U.S. obligation to redeem its currency for gold also removed an important restraint on deficit financing for the US and many other countries in the short-run, thus promoting excessive leverage that was a major contributor to the 2008 financial crisis. The paper suggests replacing several main countries’ currencies in international reserves with a real Special Drawing Right (SDR) issued according to currency board rules.
  • IMF,
  • Special Drawing Rights,
  • SDRs,
  • Real SDR,
  • currency board,
  • international reserve assets,
  • reserve currency,
  • U.S. dollar,
  • Triffin dilemma,
  • exorbitant privilege,
  • debt,
  • fiscal discipline,
  • exchange rate volatility.
Publication Date
December, 2017
Citation Information
Warren Coats, Dongsheng Di and Yuxuan Zhao. "Why the World needs a Reserve Asset with a Hard Anchor" Frontiers of Economics in China (2017)
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