Revisiting The Dollar Hegemony: Alternative Reserve Currencies Over The Years

In yesterday’s mail from the National Bureau of Economic Research (abstract):

Reserves and Baskets
Michael D. Bordo, Harold James

We discuss three well known plans that were offered in the twentieth century to provide an artificial replacement for gold and key currencies as international reserves: Keynes’ Bancor, the SDR and the Ecu (predecessor to the euro).The latter two of these reserve substitutes were institutionalized but neither replaced the dollar as the principal medium of international reserve.

Despite the brief and dry abstract, the paper itself is a very readable and informative trip down memory lane, outlining the various attempts over the years to find a replacement for the US Dollar’s role as the primary reserve currency in the post-war international monetary system.

The Triffin Dilemma Revisited

Lorenzo Bini Smaghi of the Executive Board of the ECB explains the Triffin Dilemma (excerpt):

The Triffin dilemma revisited

The intellectual heritage of Robert Triffin begins with the relevance of his “dilemma” to our days. We still have a situation in which one national currency – the US dollar – serves as the main international currency. It remains at the heart of the international monetary and financial system (or IMS). And we still have a fundamental tension between the currency demands of rapidly growing economies, the domestic policy incentives of reserve issuing/holding countries, and global economic and financial stability: in Triffin’s words, the system remains “highly dependent on individual countries’ decisions”.

Links of the Day

Dani Rodrik starts a debate against global financial regulation:


"Mr Rodrik identifies a number of problems with the idea of global regulation. Would the major economic powers of the world surrender their financial sovereignty to international regulators? No, he says. But if they were willing, could the nations of the world agree on the right set of regulations? They may not, he argues, pointing to the Basel process. Is there even a one-siz-fits-all solution? No, he concludes, citing the fundamental problem with the idea of global regulation."

Check out Richard Baldwin's post for a useful roundup of proposals for reform. I also like this little tidbit from Baldwin as well:

"My friends who are experts in financial regulation tell me that the whole Basle II exercise was subject to ‘regulatory capture’ by the big international banks, so I take Buiter’s point seriously."