Barry Eichengreen on the History of Global Currencies

Barry Eichengreen is a well known author, economist, and economic historian from the University of California, Berkeley. In Barry’s first appearance on the show he discusses a career in untangling the world’s monetary history, the origins of his new book Money Beyond Borders: Global Currencies from Croesus to Crypto, the first uses on currencies in the 7^th Century BC, the unexpected start of the dollar, how we landed on the central bank model, the dollar’s rise to global reserve currency, which if any currencies as poised to take on the dollar, and much more. 

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This episode was recorded on May 27th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. I’m glad you decided to join us.

Our guest today is Barry Eichengreen. Barry is a well-known economist and economic historian from the University of California, Berkeley, where he has authored over 30 books, many on the international monetary system. Today, he joins us to discuss his latest book, Money Beyond Borders: Global Currencies from Croesus to Crypto. It’s a sweeping 2,500-year history of cross-border money, stretching from the very first ancient coins to the rise of cryptocurrencies and central bank digital tokens. In a world facing rising political gridlock and the constant talk of de-dollarization, this book uses the patterns of the past to show us exactly how global reserve currencies rise, how they fall, and what the future holds for the US dollar. Barry, welcome to the program.

Barry Eichengreen: Good to be with you, David. I’m a fan of the podcast.

Barry’s Books

Beckworth: Thank you. I am a fan of your work, and you are one of those individuals who’s been influential on me, even though you didn’t know it, but all your scholarship, your work. We’re here to talk about your most recent book here, as I hold it up in front of the camera for those watching the video, Money Beyond Borders. Barry, I have to say you’ve written many other books. Now, I said 30. Thirty may be the low end. We can talk about that. Let me run by you three books that I read, ones that I enjoyed and I read and were influential.

The first one is probably your most famous. I may be mistaken. It’s Golden Fetters. This one here deals with the Great Depression, the gold standard. A wonderful book, and I’ll tell you why I really enjoyed that one. Then I read this book here called Globalizing Capital: A History of the International Monetary System. Then the other book I had read, in fact, I assigned this when I was teaching, back when I was at a university, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the Monetary System.

Now, I really enjoyed your Golden Fetters because it really opened my mind to the gold standard, but the politics of it. What do people tolerate, what they don’t tolerate? You really had this great insight about how the democratization, the enfranchisement of voters really has a bearing on how well certain monetary systems work. Barry, let me ask you this. You’ve written well over 30 books. I said 30 again as a conservative estimate. If you had to pick one, other than your current book we’re going to discuss today, which one would you pick and why?

Eichengreen: Let me preface the answer by saying it might be more accurate to say that I have 30 book-like publications. What constitutes a book is hard to define in the eye of the beholder. Is it something that a single author has written? Is it a co-authored volume? Is it an edited volume? Some sole-authored books are more substantial, take more years than others. I don’t count. I’m not sure where that number 30 comes from or whether I would defend it. I would agree with you.

The book that I am proudest of, I think, is Golden Fetters, partly because it was the first true book that I wrote, partly because I think the scholarship there is substantial. It started with my PhD dissertation, which then germinated for almost 15 years. Sitting down from beginning the book to publication took the better part of five years. Admittedly, I was writing other things in the interim during the process. For all of those reasons, I think it was substantial because I think one of the things I’m known for, one of my scholarly contributions, if you will, is to have developed, along with other people like Peter Temin and Ben Bernanke, the international dimension of the Great Depression, how international factors, international monetary factors, help explain the Great Depression in a way that closed economy models and theories cannot.

Beckworth: Yes, that was a great book. As you mentioned or alluded to, it takes us beyond the Milton Friedman, Anna J. Schwartz story of the Great Depression. They look at money. That’s a fair reading if you look just at money, but it’s a broader global story. I believe you and a co-author have a chart that made the rounds. This is many years ago. I’m remembering the blogosphere. It showed that the sooner a country left the gold standard, the sooner their recovery in industrial production. It was a very striking figure. That’s what you show.

Again, we want to talk about your new book, but I just have to ask you this question while I have you here, the Barry Eichengreen. If a country, let’s say the US, wanted to return to the gold standard, because I’m often asked this, why can’t we go back to a gold standard? It was so wonderful. Of course, I have to remind them, you’re probably thinking of the classical gold standard, not the interwar gold standard. If we were to go back, I would guess we would probably end up with something like the interwar gold standard again. We probably would never go back to something like a classical gold standard. How would you respond to people who ask that question?

Eichengreen: I would respond by observing that the political circumstances of the late 19th and early 20th centuries were very different from those of today. In Golden Fetters, I began to think and write about a policy trilemma. It was in that later book, Globalizing Capital, that I was able to spell it out more fully that it’s possible for governments and societies to achieve two of three things, stable exchange rates, open international financial markets, and political democracy, but that you can really only have two out of three.

If you have political democracy, there will be pressure on the central bank and the government to pursue objectives other than simply stabilizing the exchange rate, pegging the exchange rate to gold, pegging the domestic currency to gold at a fixed price. There’ll be pressure to pursue what we call today high employment, deal with the business cycle, deal with financial crises and financial instability.

If capital is free to flow, there’ll be a conflict between stabilizing the exchange rate and pursuing those other objectives. In a political democracy, those other objectives, are likely to win out. In our modern 21st-century politics, the idea that we can subordinate all other goals to fixing the dollar price of gold is patently unrealistic.

Beckworth: That’s why I was suggesting we would go to the interwar standard. Your point is we wouldn’t go at all. There’s just no way there’d be an appetite to return to something like that. The interwar gold standard, the story you tell and others, Doug Irwin has a great paper, “Did France Cause the Great Depression?,” which builds on your story. Each country’s going to look out for themselves. They have the gold exchange standard during that period. I suspect it wouldn’t be anything different. You’ve written a lot about this. Maybe one last question before we get to your book related to this. At the end of the day, is it not so much the monetary standard, whether it’s a gold standard or a fiat standard, it’s really the deeper institutional commitment to price stability, the public support for it, that really what we fundamentally care about and what really matters?

Eichengreen: Absolutely. I often get the question today, and this is anticipating our subsequent discussion, David, about why the dollar remained the leading global currency following the collapse of the Bretton Woods system. Many people thought that with the collapse of that monetary arrangement, the dollar would lose its dominance as the leading international currency. It did not because of the strength of the underlying institutions, the independence of the central bank, with Paul Volcker coming to the Fed, its reassertion of its commitment to price stability.

At a deeper level, the Fed is independent. The United States is a country of rule of law with separation of powers, et cetera, et cetera. People are beginning to think again about the strength of those US institutions, and if they are not as robust as we assumed in the past, what that implies for the future of the dollar. That’s an indirect way of saying, yes, David, I agree.

Beckworth: I think that’s a subtle point that many people missed. They think somehow it’s the rule or the regime itself that matters. It can help, but it’s fundamentally a deeper commitment. We just saw, I think, an echo of this. We saw during the ’21, ’22 period this real strong aversion by the public to high inflation. It became something that was number one in the polls. It reminded me of some research that was done on the 1970s. In 1970s, you go back and look at the Gallup polls. Inflation becomes worry number one above all these other issues at the time. I think that was one reason, not the only reason, that someone like Paul Volcker could come in and do what he had to do. As unpopular as he was, there was still this broad support to fix the inflation problem.

Money Beyond Borders

All right. Let’s move on to your book. Again, Money Beyond Borders: Global Currencies from Croesus to Crypto. It’s a great read. As I mentioned, 2,500 years. It’s probably the only book I’ve read that looks at monetary history from that far back. Why write this now? You’ve written all these other books on monetary history. Why do this one?

Eichengreen: Partly for the fun of doing it. You mentioned the 30 books. Writing books is my artistic outlet, if you will. It’s more fun than writing scientific technical journal articles with lots of equations, standard format, 90-page unpublished appendix. It was an opportunity to learn new things. I hadn’t written about ancient Greece and Rome before. It was an opportunity to read a lot of numismatics. When you do that early monetary history, you’re looking at coin hoards and where they’re found and speculating about how they got there, and archaeological evidence about the operation of the associated economies, what kind of pottery shards and other things did they leave behind? It was a lot of fun to read those new source materials.

More concretely, we are today in an age of digitization, rapid technological change affecting monetary and financial systems. This is something you can understand better, I think, by looking at the long sweep of history. You see over time the movement from ingots, lumps of precious metal, to coins, to banknotes, to bills of exchange, to commercial bank money, now to distributed ledger technology, tokenization, and so forth. I wanted to think about the future of the international monetary system as it will be affected by technical change, placing that in the longer-term perspective. Finally, I guess, recent events have pointed up the connections between politics on the one hand and international currency status on the other. Again, looking at the long sweep of history is a way to highlight those linkages.

Beckworth: The book is a fun read. Again, I encourage listeners and watchers of the video to get their own copy of it. Before we go into this chapter by chapter, because again, a lot of great history in there, why don’t you provide the executive summary? Give us the punchline, so we know where we are heading in this conversation.

Eichengreen: Punchline is very much what I alluded to before, that international currency status is not forever. We have seen the rise and fall of dominant international currencies repeatedly before in history. The rise and fall both have political as well as economic correlates or determinants, if you will. The economic and financial ones will be familiar to our fellow economists: a healthy economy, growing international trade, foreign investment links, and so forth. 

In addition, there are domestic political prerequisites: separation of powers, rule of law, so forth, and international political prerequisites that aligns politics. First of all, the ability of a state or kingdom to defend its borders and to project power internationally to form alliances with other economies, other states, is important for international currency status because governments, central banks, others, for their cross-border transactions, hold and use the currencies of their alliance partners. You can trace those links all the way back to ancient Greece and Rome and all the way up to the 21st-century United States.

Beckworth: Such a great sweep of history here. One last question before we jump into these chapters with the history of Lydia and Greece, which we’ll do next. Do you think it’s inevitable—given all those prerequisites you just outlined—we check off that list for a particular country, and its currency becomes a reserve currency, is it inevitable that we always end up with one dominant reserve currency? If we were to rerun Earth’s history, as you and I would say, do Monte Carlo simulations of Earth’s history thousands and thousands of time, would we, on average, see a single reserve currency emerge, or do you think the possibility exists for more of a fragmented system?

Eichengreen: We have seen a more fragmented system repeatedly in history. For example, under the gold standard era before 1913 that you mentioned before, one of the underappreciated facts about that system was gold rarely moved across borders. It was expensive and risky to transport. Financial transactions were used to settle payments, imbalances between countries, not only transactions involving the pound sterling, but also the French franc and the German mark. Even though there was a first stage of globalization before 1913, there was a more multipolar monetary and financial system.

Similarly, in the 1920s, both the dollar and sterling were consequential international currencies. That experience didn’t turn out as well for a variety of reasons: badly managed financial systems, poorly formulated monetary policies, problematic politics. I think, especially today in the 21st century, everybody has in their pockets a device, a smartphone with which they can trade currencies. The network effects, it’s costly and difficult to do business in a different currency than your counterparties, the people you deal with are using. Those network effects are less powerful, I think, than they were in the past when transactions costs were higher.

I don’t think it’s inevitable. I often argue that we are moving toward a more multipolar international monetary and financial system where several currencies will share the international stage. I often say I’ll keep predicting it until I’m right.

Beckworth: That was in, I believe, your Exorbitant Privilege book, but also it’s near the end of this book as well. We’ll come back to that point. All right, let’s go into ancient history. Let’s go to Lydia and then Greece. Tell us the story there. This is in chapter 2 of your book.

Lydia and Greece

Eichengreen: At the beginning of the book, I talk about the advent of coinage in Lydia in the 7th-century BC. Croesus was the Lydian king to whom this innovation is often ascribed. The Lydians were consequential traders in Anatolia, close to the Bosporus. They traded with the Greeks and they traded with other parties in the Near East, in the Middle East. They were at the crossroads between Asia and Europe.

They used lumps of electrum, electrum being an alloy of silver and gold. The problem with using those ingots for transactions were that ingots are awkward, number one, because their weight and form varies. They’re just lumps of metal. Number two, if you have an alloy of gold and silver, you tend to be uncertain about the relative weight of the two precious metals in the lump. They moved to standardize both the purity of the lump and the form. They moved to a disk with a seal imprinted on it, and voila, we got coinage.

They continued to trade with the Greeks and what worked in Lydia was adopted in various Greek islands and, with a lag of a few centuries, on the Greek mainland as well. From there, it was the coins of the various Greek city-states, ultimately Athenian coinage dominated. The Athenians were big traders as well. I think Athens imported as much wheat at its height as did the Dutch Republic in the 17th century when the Dutch guilder was the leading international currency. They settled those transactions using their own coins which circulated over much of the Mediterranean and the Middle East into Asia Minor as well.

Beckworth: That’s such an interesting chapter. Throughout your book, you also mention Rome. I’ll come back to Rome a little bit later. In this chapter, you also mention that China arguably also discovered coins around the same time as Lydia. There’s some debate, some contesting about that. Tell us about that story.

Eichengreen: The evidence is incomplete as I read it. The dominant metal used for those coins was copper. We have the famous image of copper coins with a rectangular hole in the middle strung on a necklace, if you will, carried around people’s necks in that form. The problem being that copper is not especially valuable. Copper coinage was used for local mercantile transactions, if you will, not so much for international transactions, not as practical for high-value cross-border transactions as silver and gold, of course.

Renaissance of Credits

Beckworth: You then move in the book to the “Renaissance of Credits”—that’s your chapter’s title—looking at Florence and Venice. Tell us about the development of cross-border money regimes there.

Eichengreen: I think the Florentine case is especially interesting because Florence was never a major economic and political power, if you will. Florence is a small city-state nestled in the hills of Tuscany. It doesn’t have a lot of natural resources. It was able to develop an economy that flourished by early modern standards for a couple of centuries on the basis of dying and finishing raw wool. It imported the raw material from Northern Europe, from the Low Countries, and from England, and exported the finished cloth.

One thing Florence had was a river, free-flowing water with which it could clean the wool, and eventually developed spinning and weaving industries that were highly competitive in the period. Once they started importing raw wool from Northern Europe, they had to pay for it. They really became a monetary and financial power, with the Florentine florin being used for commercial and financial transactions all over Europe on the basis of multinational banking. They started out by hiring agents to source the raw wool, opening branches of the merchant banks.

Merchants who imported the wool turned into bankers, opened branches throughout Europe, then started doing international financial transactions on behalf of the king of England, on behalf of the pope as well. It was really on the basis of their financial precocity, if you will, that they became financial powers. The florin came to circulate so widely. They were heavily responsible for the adoption of the bill of exchange, where actual coin didn’t have to move in order to complete a financial transaction. You didn’t have to hire a bunch of big guys with swords and guns in order to protect the precious metal when it was moved from one place to another. You could simply send a message to do a bookkeeping transaction in a far-flung place.

Beckworth: These are all great stories of monies that became international. You mentioned in Athens, its currency was widely used, its coins. We go to Florence, now we’re seeing the emergence of bills, in addition to coins. Let’s look at one more very prominent coin that emerges, or commodity money that emerges, and that’s the Spanish silver. Tell us about that. What I really want you to spend some time on is how it plays into China’s history because that’s, I think, an underappreciated element of this story.

Spanish Silver

Eichengreen: The case of Spanish silver is interesting and complicated because on the one hand, it’s a retrograde development. It’s back to commodity money as opposed to the ledger money, if you will, bank money that the Florentines had begun to develop earlier. On the other hand, Spanish silver, pieces of eight, we call them, or Spanish dollars, were the first true global currency in that they were used everywhere around the world.

Spanish New World silver flowed from Spanish mints in present-day Bolivia and Mexico to Europe and from Europe to Asia, India, China. They also flowed from Acapulco to the Philippines and on to China through the famous Manila galleons, the big ships that exported silver and imported silks and porcelains and other things from Asia back to the New World.

The Chinese economy ran on Spanish silver well into the 19th century. It was the dominant unit used there. It was really one of the dominant units used in the United States as well. Spanish silver dollars minted mainly in Mexico were legal tender in the USA until, if memory serves, 1857. Alexander Hamilton famously established a mint in 1890 or so, but we didn’t have the raw material to power the mint until the California gold rush, 1849, the Nevada silver rush a few years later, at which point we could coin enough of our own coinage that silver dollars lost their legal tender status in 1857.

It is quite remarkable not only how widely Spanish silver coin circulated, but for how long. The big silver discoveries in the New World were in the 16th century. Spanish silver remained a global currency up into the 19th.

Beckworth: That is such an amazing story. That part of it where you mentioned the Spanish dollar, your previous guest we had on was Brendan Greeley, he makes this point, and you do too, is that the dollar was initially an international currency. Like you just mentioned, it was everywhere. Then it became an American currency, and it was no longer international to the same extent. Then it again becomes international. You have this U-shaped story. It’s international, more domestic, then international again. So fascinating, the story of the dollar from being the Spanish dollar to the American dollar. We’ll come back to that in a little bit too, in a later chapter.

Going to China, so China adopts the silver standard. One of the interesting things I read Milton Friedman many years ago is China was so fortunate because they did not have the gold standard. In fact, your work, the Golden Fetters and people who followed you, it was a global recession because of a global gold standard. Lo and behold, China had the silver standard. They were insulated from that deflation, that tightening of the noose, at least for a period. Up until 1934, where Roosevelt starts buying up silver.

Tell us about that because that’s so fascinating. Everywhere else in the world, there’s this pain and suffering. In China, they must have been looking out with wonder and awe. Why are these other countries suffering?

Eichengreen: I’m not sure the 1920s and 1930s were such a happy period in China.

Beckworth: Fair enough.

Eichengreen: They had civil war-related problems of their own, and as commodity producers, they had problems as well. You’re right that they were spared the problems of being on the gold standard because the relative prices of gold and silver fluctuated until late 1933 when Roosevelt raised the price of gold, which reduced the relative value of silver and exported Western deflation to China.

The Emergence of Central Banks

Beckworth: All right. Let’s go on to another chapter in your book. This is where you spend some time, we have chapter 5, talking about the transition from coins and private money into central banks, the emergence of central banks. What’s the story there? Why do central banks emerge, and what role do they play in helping one’s currency become international or a global currency?

Eichengreen: Modern central banks clearly are important as lenders and liquidity providers of last resort. One feature that makes for a widely accepted global currency is its liquidity, that it’s freely available. You can buy and sell it at low cost reliably, and it is central banks that backstop that market. If you go back in history, you begin to see prominent financial institutions executing that same function. Often they are private financial institutions, like the Bank of England was until it was nationalized in the 1940s.

Sometimes they are municipal financial institutions, like the Bank of Amsterdam that Will Roberds and Stephen Quinn have written about. I do have a chapter about the Dutch case and the Bank of Amsterdam, which Will and Steve advised me on, which talks about how the Dutch guilder became the first fiat currency whose wide acceptance throughout Europe rested not on a set of gold standard rules but on the credibility of the Bank of Amsterdam.

The point that you made before, David, that the bank was partly overseen by a board of directors, a set of influential businessmen and investors who valued the stability of the guilder. Even when the rules were changed such that everyone could not freely redeem their claims on the Bank of Amsterdam in gold, they were still willing to hold those claims and do business using Bank of Amsterdam money for a century and more. Eli Heckscher, who you know from the Heckscher-Ohlin theorem, wrote about how when Russian and Swedish timber exporters were doing business with English importers, they would do the financial part in Amsterdam using Dutch guilders.

Beckworth: I had on the podcast, as I think you know, Stephen Quinn and Will Roberds on the Bank of Amsterdam. I learned a lot. I didn’t realize you could argue that is the oldest central bank of sorts. Now, if you talk to someone at the Riksbank, they would say they’re the oldest central bank in operation. That was my impression, they were the oldest. To be fair, they’re the oldest in operation. Central banks play a role that they come in.

I guess just to raise a different perspective on this, do you think central banks’ emergence—they play this key role, as you mentioned, providing liquidity backstop, but they also tend to emerge as a way to support war efforts, right? The Bank of England, the Bank of France, they all were there to really support fiscal spending in those places. The emergence of the nation state inevitably leads to conflict with other nation states, which inevitably means we need some kind of monetary authority that’s going to backstop the government. Do you think that’s part of the story there, the fiscal needs of an emerging nation state?

Eichengreen: I do think that’s central to the development of the political as well as the economic prerequisites for a widely accepted international currency. You’re quite right that the early central banks tended to develop to service the fiscal needs of the state. Over time, they developed this monetary aspect as well. It was to serve those fiscal needs which were most urgent in times of war that they were really established.

To jump ahead just for a minute, to disrupt your chronology, the Federal Reserve was developed for very different reasons, to provide an elastic currency to deal with interest rate fluctuations and to internationalize the dollar, not in anticipation of World War I or anything like that. As you know, the dollar played no international role before the Fed. That’s another example of how there has to be a central bank to support the market in trade credits and financial markets more generally in order for a currency to acquire international status.

Beckworth: I bring this up because I’m someone who’s read some of the free banking literature. For example, the Scottish free banking, 100-year period, no central bank, seemed to do okay. The Canadian free banking system. I’m sympathetic to the arguments made there, but it seems as if history has turned out that the equilibrium or the outcome is a world of central banks. We’re not in a world of free banking.

I was talking to Jesús Fernández-Villaverde, who’s also an economic historian. We got in this discussion. In fact, he was on X making this point about modernity. People will sometimes attribute things to capitalism, the challenges, the big corporations, but he attributes it to, that’s just a requirement for the modern age we live in. We need big institutions. I pushed him. I said, “What about central banks?” He’s someone else who’s very sympathetic to free markets, and he knows the literature. He goes, “Yes,” he goes, “I think when we have nation states, eventually war arises, and you’re going to need something like a central bank.” It was almost, I don’t want to say inevitable, but it was definitely a path that was maybe a path of least resistance.

Here we are with central banks. You mentioned the Fed’s an exception to that. The Bank of Amsterdam, it was more of a private entity, a city bank as well. It’s interesting to see maybe these big forces pushing us, nudging us along to the emergence of central banks.

Eichengreen: I agree with that. It speaks to the debate over stablecoins at the moment. One way of interpreting that is an attempt to go back to the private provision of money, competing currencies, 21st-century version of free banking, if you will. Will it work? The answer hinges in part on whether you think, as I do, that the arrow of history points toward the public provision of the public good of stable money.

I do think we’ve moved away from tax farming toward a big bureaucracy we call in the United States, the Internal Revenue Service of the Department of Treasury of the federal government. Similarly, in the monetary sphere, I think we have moved away from private monies toward recognizing that there are advantages to the public provision of money, although this is a very contentious debate among us economists where ideology plays an important role.

Beckworth: It is, and I’m probably more sympathetic to the free banking literature, but I also see the reality on the ground, I guess, is what I’m saying. It just seems like we ended up in this place through trial and error. Again, if Jesús, who I would say is probably similar in view to me, can see that point, I think there’s something to be said for it. It’ll be interesting, Barry, to see this whole stablecoin debate. I know we’re getting ahead of ourselves here. You mentioned where will this end up. We have the GENIUS Act, which turns any stablecoin in the US into basically a government money market fund-type entity, which would be like Circle. Then you’ve got Tether, which is outside.

We have an experiment. We’re going to have something more free banking. Tether is the free banking model outside the US, and Circle is the more regulated in the regulatory perimeter of the US government. If what I’m saying is right, then one day maybe Tether might also be in that regulatory perimeter. When push comes to shove when they get bailed out, or something happens, they’ll be the same as Circle.

Eichengreen: Sure. Tether has already announced that it wants to clone itself and issue a GENIUS Act-compliant version of Tether to circulate in the US, and plain vanilla Tether will circulate in other jurisdictions. All the stablecoin issuers I’m familiar with want to buy banks, trust companies, and get access to its balance sheets. I think what comes next is uncertain. You used words like interesting and exciting. That it will be interesting and exciting is the one thing we know for sure. 

British Empire vs. Roman Empire

Beckworth: Yes. Going back to your book, we were discussing previously, the following chapter gets into the Bank of England which we touched on. As I read that chapter, maybe I’m making a bad comparison here, but I was taken back to Rome. The British Empire, the sun never set around it. Arguably, military played some role in it. Rome also had this money throughout its empire. I think you argued that a lot of it had to do with payment to soldiers. It got spread versus direct retail use. Are there any comparisons, do you think, between the emergence and spread of Rome’s money with Great Britain’s money, or are they two different beasts altogether?

Eichengreen: I think I would point to more differences than I would similarities. The word empire applies in both cases. What is different about the British case is the remarkable development of the London money market in the early 19th century. When it becomes the first true global financial center in the sense that banks from around the world set up branches or offices in London in order to be able to do cross-border business in pounds sterling, that British banks set up branches of their own around the world in order to similarly provide sterling-denominated financial services to companies, banks, and governments in far-flung places.

You have a level of financial development or financial articulation there that I don’t think had a precedent in any of the earlier cases that we talked about. The other thing to bear in mind, and this is a similarity, that Rome was an important trading economy and so forth. Britain was the leading trader. Britain was the single largest economy in terms of GDP in the first half of the 19th century until it was eventually overtaken by the United States, Germany, and others in the second half of the century. It’s not only the financial aspect, but the fact that Britain was the first industrial nation, home of the Industrial Revolution, that has a lot of power to help us understand how the pound sterling became so important globally.

Beckworth: Yes, for sure. Very different stories altogether. Maybe I’m reaching there, because we all like to talk about Rome, bring Rome into the picture. The Bank of England, I think you would say, then is probably the benchmark where we look back and we learn the original ideas and lessons. Bagehot, right? We learn all these things. What is the art of central banking? The Bank of England tells us what it is. Of course, we continue to grow and understand. One last question on Rome. I just have to squeeze this in there. I didn’t see it in your book. I may have missed it.

Something that’s fascinated me about Rome and your colleague, Peter Temin, I read his book, The Roman Market Economy, I believe, is the name of it. It was fascinating. He showed how prices were related to the distance from Rome. This is super fascinating. Markets were operating in the Roman Empire. There’s a story of this financial crisis in 33 AD that sounds a whole lot like a modern one. As I understand it, and this may not be the completely accurate rendering of it, but there was some old usury laws on the books from the time of Julius Caesar, and some ambitious prosecutors decided to enforce them.

What they said is if you were someone of wealth, you’re supposed to invest your money as a Roman into local land and real estate. Instead, the Romans were lending it out. Basically, it called in all these loans. It created markets. The lending markets crashed, land markets crashed, and then Tiberius basically had to lend out a bunch of money. He was like a lender of last resort. This apparently was felt throughout the empire. Alexandria, Ephesus, there’s accounts of credit drying up. I’m like, “Wow, that’s so remarkable.” Any thoughts on that particular financial crisis?

Eichengreen: I don’t talk or write about that particular crisis in the book. I talk rather about the overextension of the empire and the lavish spending of the various emperors. The book went off to the publisher before Donald Trump’s ballroom, but I do talk about Emperor Nero’s 300-room palace. How that, together with his foreign military adventures, led him to debase the Roman denarius, and how that launched Rome down the slippery slope of further debasements in a period of a century or so, at the end of which the denarius had lost its international currency status. I have to go back and read my late dear friend Peter’s book on that particular episode.

Beckworth: You gave a paper either last year or the year before at the Jackson Hole Conference on this growing debt problem. We’ll provide a link to that in the transcript. You are someone who’s not only thinking about international monetary regimes and history, but you’ve written a lot about the growing debt burden as well. You’re doing the Lord’s work on both fronts, Barry. We appreciate that. Let’s bring this to the present and let’s focus in on the dollar. Tell us, and I believe you have two different dates, but when did the dollar become the dominant reserve currency of the world?

Dollar as One of the Dominant Reserve Currencies

Eichengreen: The dollar became one of the dominant reserve currencies twice. First, immediately after World War I because the British economy and the pound sterling were challenged as a result of the war. Britain came out of the war weaker and more financially indebted. Whereas the US established the Fed in 1913, partly with the objective of fostering wider international use of US currency. US exporters and importers had to source trade credit before World War I by asking their bank to contact a correspondent bank in London and get that trade credit from the London bank in pound sterling, because that’s what importers and exporters around the world required.

Americans like Paul Warburg, the German-American banker who was one of the architects of the Fed, thought this was risky and a burden on US exporters and investors. The Fed came along and fostered a market in dollar-denominated trade credits in the 1920s. At the end of the decade, the dollar was at least as important as the pound sterling. As an international currency, that status was then lost in the 1930s as a result of three banking crises in the United States, which led to the liquidation of dollar reserves and movement away from relying on the dollar.

After World War II, there was, if you will, no alternative. The US economy was far and away the world’s largest. We accounted for half of the Western world’s industrial production. We were the only country with liquid financial markets freely open to the rest of the world. The dollar’s singular status was recognized in the Bretton Woods Agreement in 1944. Other countries should peg their currencies to gold or the dollar. It was effectively written in the Bretton Woods Agreement. A version of that same dollar dominance has prevailed ever since.

Beckworth: Going forward, in your book, you mentioned some potential competitors, but also some potential problems at home. Maybe tie these two ideas together. What is the biggest threat to dollar dominance? Is it internal problems we have here in the US, like lack of fiscal discipline, or is it competitors on the horizon?

Eichengreen: It is those internal problems. Both economic and financial problems, debt-to-GDP ratio, which is beginning to rise to alarming levels as a result of chronic budget deficits that neither party has the appetite, the willingness, the ability to address. We know there will come a point where international investors will grow reluctant to hold US Treasury securities as the bedrock of their portfolios if we allow those problems to spiral out of control. Also, the domestic political issues that we both alluded to at the beginning of the podcast, that confidence in the dollar rests also on political foundations, independence of the Fed, rule of law, separation of powers, control of corruption, all that.

Beckworth: Looking at the competitors, let’s say we somehow get our fiscal house in order, we deal with some of the problems internally. Do you see any competitors that would put up a challenge? Again, you alluded to the internal problems being more important, but China, Europe, what else is out there that could possibly pose a challenge to the US dollar?

Eichengreen: I think there are a number of alternatives out there that can nibble at the dollar’s dominance around the edges, but none of them that can challenge the dollar, replace the dollar, fill the dollar’s shoes, if you will. Typically, we look to other big economies as potential rivals to the dollar on the grounds that they have a large domestic habitat, if you will, a large platform for their currencies. They do a lot of international business, logically in their own currency. The euro has gained zero ground on the dollar as an international currency in its 25 years of existence because European financial markets are not as liquid as US financial markets; they’re siloed.

Europe has a project Capital Markets Union, designed to create that euro area-wide liquid financial market. There’s resistance to completing Capital Markets Union from banks, which are national champions, fund managers in places like Luxembourg and Ireland, where they don’t want to give up their prerogatives to European regulators. There’s a shortage of AAA-rated government bonds in Europe equivalent to US Treasury securities. Only three or four European governments have AAA ratings from all the major rating agencies. The ability to project power and influence internationally that the US possesses doesn’t exist in Europe.

There is no common foreign and defense policy. They’re trying to address all those obstacles to the euro playing a larger global role, but we have learned that that kind of progress does not occur quickly in Europe. When will they have removed all of those obstacles? Not this year, not next year. In a decade, who knows? As for China, they’re moving as fast as they can to promote wider international use of their currency, the renminbi. There, I would make a couple of observations. Number one, they’re starting out way behind the dollar. If the dollar accounts for 57% of foreign exchange reserves worldwide, the Chinese renminbi accounts for 2%. We see the same disproportion along a variety of other dimensions.

Why is no mystery. China has been trying to internationalize the renminbi for 10 or 15 years. The US started in 1913 with the founding of the Fed more than a century ago. That makes for a big head start. Cross-border payments using the renminbi had been growing at double-digit rates until 2025, when they barely grew at all. The Chinese economy used to grow at 11% a year, and now they grow at 4%. I don’t think anything will grow at double-digit rates in China, including cross-border payments going forward. The date at which the renminbi will come within hailing distance of the dollar is, I think, far in the future. Finally, there are those political issues that I alluded to in the US context.

China is not a country famous for rule of law, separation of powers, and independence of the central bank. The absence of those traditional political prerequisites for international currency status is a headwind for the renminbi as well.

Beckworth: No meaningful competitor on scale anytime soon. On the margin, maybe they nibble a little bit here and there. Let’s say, for the sake of argument, we do get to a place, a multipolar world, the one that you said you’ve argued for, and you think at some point maybe it happens. I just want to throw this out there. There was a well-known paper by the late Emmanuel Farhi and Matteo Maggiori, and they invoke this Nurkse warning, the economist Ragnar Nurkse, where he argued that if you have a multipolar world in terms of currencies, it’s actually less stable.

I think the argument goes something like this, that you’ve got, let’s say, three regions. You’ve got the euro zone, the renminbi zone, and the dollar zone. They’re all meaningful, sizable competitors. They all have safe assets. The argument, I understand, is if there’s a crisis in one, you have a great incentive to run to one of the other zones. You have a bigger flood of funds moving across borders. It’s like a bank run, but from one currency zone to another, as opposed if you just had one, you’re not going to run as much because there really is no place to run. What do you think about that point? That world may be one with more financial instability if you have cross-currency runs.

Eichengreen: It’s a very good paper, but in answer to your question, I will invoke the economist’s standard line, it depends. In other words, it depends on the underlying policies. If the policies of the central banks and governments responsible for the respective reserve currencies are sound and stable, then we end up in a situation where there are multiple providers of international liquidity providing the finance needed for the continued expansion of trade and payments. If the underlying policies are unstable, then you can get those volatile shifts from one liquid market and one currency to another that will upend prevailing exchange rates, wrong foot important institutional investors, and lead to financial crises and all that.

I would just observe that we have seen examples of both types of systems before. As we talked about a little earlier, before 1913, the pound sterling, the French franc, the German mark were all used in international transactions. They all traded in liquid markets. That system worked well because, broadly speaking, the underlying policies were sound and stable. In the 1920s, we had both the pound sterling and the dollar. Due to economic and financial problems, financial crises of various sorts, that system worked poorly. It depends. I don’t think that the global economy can run on dollars and dollar liquidity alone forever.

The 21st-century version of the Triffin dilemma, Robert Triffin, actually having been one of my professors in graduate school at Yale—that’s another story—the 21st-century version goes that the US has to provide liquidity to the rest of the world, sufficient in amount to grease the wheels of international transactions. Our ability to do so is limited by our fiscal capacity to raise the tax revenues to service the debt that we distribute around the world. That’s a dilemma. Other national sources of liquidity are the solution to the dilemma, in my view. I think we’re going to have to figure out at some point how to manage a more diverse, more multipolar global monetary and financial system.

If the logic of convergence prevails and poor countries grow more quickly than mature economies over time, the US will logically come to account for a smaller share of global GDP, at which point our fiscal capacity relative to the world’s liquidity needs will decline as well. We’re not going to be able to operate a unipolar international monetary and financial system indefinitely into the future.

Beckworth: Those are all great points. With that, our time is up. Our guest today has been Barry Eichengreen. His book is Money Beyond Borders: Global Currencies from Croesus to Crypto. Be sure to get your copy of it. Barry, thank you for coming on the podcast.

Eichengreen: It was fun, David. Thank you.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.