Barry Eichengreen, Paul Blustein, and Brendan Greeley on Dollar Dominance

Barry Eichengreen is a is well known author, economist, and economic historian from the University of California, Berkeley. Paul Blustein is a former Washington Post and Wall Street Journal journalist who has authored several acclaimed books on global economic institutions. Brendan Greeley is a veteran journalist from the Financial Times and current PhD student at Princeton studying monetary history. They all return to the show for a special roundtable discussion where they discuss the history of dominant currencies, whether we will always end up with a single reserve currency, whether monetary sovereignty is earned or given, the question of exorbitant privilege, what there is to do about a second China Shock, the future of dollars in the digital age, and much more. 

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This episode was recorded on May 11th, 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, and I’m glad you decided to join us. 

Today’s episode is a special roundtable discussion on one of the biggest questions in international finance: Why is the dollar still the world’s dominant currency, and how long can that dominance last? To help us think through this question, I’m joined by three previouspodcastguests and authors of recent books that approach the question of the dollar from very different but complementary perspectives.

Our first guest is Barry Eichengreen, who recently published his book titled Money Beyond Borders: Global Currencies from Croesus to Crypto. Our second guest is Paul Blustein. His recent book is King Dollar: The Past and Future of the World’s Dominant Currency. Our final and third guest is Brendan Greeley. His new book is The Almighty Dollar: 500 Years of the World’s Most Powerful Money. 

Together, these authors and their books raise some fascinating questions. Is the dollar’s dominance primarily about American power, financial markets, institutional trust, or network effects? Is dollar dominance an exorbitant privilege or burden? Are we witnessing the beginning of a new transition to a new currency order or just another premature obituary for king dollar? Barry, Paul, and Brendan, welcome back to the show.

Paul Blustein: A pleasure to be with you.

Brendan Greeley: Thank you.

Beckworth: It’s great to have you on, such an esteemed crew of scholars. I’ve had the privilege to visit with you before. Listeners, if you have not already, go back and check out their shows. We’ve discussed their books. It’s great to bring you all together and to have this roundtable. We can draw upon each other’s ideas. We can ask each other questions. I want to begin first by giving you each a few minutes just to pitch your book. Tell us what the book’s about, and then we’ll get into the broader discussion about the dollar. We’ll start with Barry.

On Each Author’s Book

Barry Eichengreen: Thank you, David. I’m happy to try the elevator pitch, although it’s a crowded elevator today. The premise of my book is that we can learn important things about the future prospects of the dollar from the very long sweep of monetary and financial history, and effectively, two-plus millennia over which currencies have been used to cross borders for commercial and financial transactions. 

That history elucidates the economic and financial prerequisites for international currency status that I think will be familiar to economists, that they tend to be the currencies of countries with considerable economic, commercial, financial prowess. They’re big exporters and importers, big foreign investors, and so forth that possess stable currencies and liquid financial markets. I emphasize also that there are important political prerequisites for international currency status, internal and external. Internally, they tend to be the currencies of countries with a separation of powers, rule of law, control of corruption. You can guess where I’m going later in the conversation.

They tend to be the currencies of countries that have well-established geopolitical alliances as well, where their alliance partners regard the issuing country as a reliable steward of their foreign reserves, where the alliance partners are more than willing to hold and use that currency as a show of good faith in their geopolitical partner. Again, you can anticipate what the subtext is when we return to the dollar’s fate.

Beckworth: I love that, Barry. 2,500 years of monetary history. What an undertaking. All right, how about you, Paul? Give us an elevator pitch for your book.

Blustein: Well, my personal favorite way of pitch for my book is to cite the dedication. The dedication is, “To my grandchildren, whom I will always love unconditionally, even if they grow up to like crypto.” More substantively. I think it’s fair to say my book is pretty much on one end of the spectrum of the argument in the debate that’s been underway for the past several months about whether the dollar’s dominance is secure or not. Although I’m as appalled as anybody at the actions of the Trump administration has been taking, I believe quite strongly that the dollar will retain its dominant role for the foreseeable future by whatever definition you want to apply to the word foreseeable.

Let me emphasize, although I said I’m at one end of the spectrum, I think I’m in pretty good company. I think I’m well aligned with Paul Krugman, with Eswar Prasad of Brookings, and with you, David. I recall you writing something quite similar on the subject. My central overarching theme of the book is that although I’m confident that the dollar will remain dominant for the foreseeable future, I do not think that this means that the United States should be complacent about being the issuer of the world’s dominant currency. Far from it. 

I hope this doesn’t sound juvenile to listeners, but I argue that the Spider-Man principle ought to apply to the dollar, that with great power comes great responsibility. The dollar’s dominance confers great power on the United States. I think the main power is to use the dollar as a weapon for foreign policy purposes, but that power should come with commensurate responsibility. I go into a number of ways in which I believe that to be true in the book. In the interest of time, I’ll just focus on one. The most obvious one is it’s used as a sanctions weapon. When we impose dollar sanctions on an adversary country, people’s livelihoods can be really seriously adversely affected, and there can be blowback because countries can use some kind of economic weapon against us. They can retaliate, even if they can’t use their currencies the way we can against them.

My book has a lot of history in it. It’s not primarily a work of history, but I was a journalist covering some of the big events in the book, not to date myself too much, but that includes the war on inflation launched by Paul Volcker when he was Fed Chairman back in the late 1970s and early ’80s. I like to think that my experience as a journalist helped bring some of these things to light. The majority of chapters of the book deal with more recent events. It deals with two really important new developments concerning the dollar, its use as a geopolitical weapon, and how all that works.

The second being crypto and all these new innovative technologies for the transmission of money, including central bank digital currencies, stablecoins, and tokenized deposits, and so forth. I’ll just give a little taste of where I come out on that. I suppose I could have dedicated the book to my grandchildren, whom I will always love unconditionally, especially or all the more if they grow up to like tokenized deposits, but that doesn’t have quite the same ring to it.

Beckworth: Thank you, Paul. I will remind the listeners when Paul came on, we talked about his previous career as a journalist. He wrote some books on the emerging market crisis of the late 1980s and also in Argentina. Believe it or not, those books were pivotal for me getting my foot in the door at US Treasury Department. My first job out of grad school was international affairs. I had a series of questions, almost like prelim questions, but policy-focused international finance. Because I had read Paul’s books, I was able to make them through. Paul, I owe you some measure of gratitude for where I am today. Thank you, Paul. 

Now let’s go to my FOMC bro, Brendan. I follow the FOMC closely, as many of us do, and I would turn on my TV, and there’d be Brendan asking the chair what they were doing. He’s now become a scholar in terms of writing this awesome book, as you know from a previous episode. Brendan, remind us about your book.

Brendan Greeley: Sure. I have to say, first of all, David, I’m a little embarrassed because I thought I was the person who had written the longue durée history of the dollar. I go back 500 years. While I’m trying to finish a 500-year project, Barry casually drops 2,500 years of dominant currency history. I can explain why I ended up going back 500 years with the dollar. As you point out, I was a Fed correspondent. When you are a Fed correspondent, your entire world, your epistemic world, is locked in by macroeconomists. That’s who you talk to on a day-to-day basis to help understand what the Fed is, how the Fed works, what its tools do, their macroeconomists inside the Fed, outside the Fed. It’s very much a world built by economists. 

When I started looking at the dollar, I started to make the kinds of assumptions that economists made because that’s what I had learned as a journalist. I very quickly arrived when I was trying to figure out how to structure the book at what I started to call the 1776 problem, which is we are taught to assume monetary sovereignty. We assume that a country has control over its own money. It can lose that control if it administers it poorly, but in general, new country, new currency. By that measure, when America was founded as a new country, it should have had a new currency, but it didn’t.

What it chose instead as its currency was a coin from the Spanish Empire made out of Mexican silver at the time, and Bolivian silver with a German name. That to me suggests that sovereignty, or at least monetary sovereignty, is not something that we can assume, but something that we have to win slowly over time and is constantly being tested. My book goes all the way back to the beginning of that coin. It came from a silver valley called Joachimsthal, and that word got shortened in German to Taler and then became dollar in Dutch and then dollar in English. It was already in usage in English in the early 17th century, well before the founding of the United States.

When I look at this history of the dollar, empire certainly plays a role, but what I don’t think is true is that the domestic currency of an empire spreads beyond its borders. For example, those original Joachimsthal coins, they weren’t really pushed out by an empire or even really a state. They were meant as dividend coins paid out to mining investors in Saxony, and from there became useful in the Baltic. I think it’s the same when we think of the dollar becoming the piece of eight as part of the Spanish empire. Spain didn’t really have a domestic silver piece of eight. It was very much a copy of the existing dollars that were already in use and current in the Baltic.

I think for me, what I brought to this discussion or where I come out at the end of this book is empire is important, but it doesn’t define the value of the dollar, and it hasn’t defined the value of the dollar in the past. I think instead, we need to look not just at large empires that are able to spread their own currencies past their own borders, but why some currencies start international, stay international, and what power they actually have over the empires that eventually decide to adopt them.

Globally Dominant Currencies

Beckworth: Yes, very interesting. That’s a nice segue into the first big question, and that is the dollar’s dominance. Barry, I want to go to you because you have this 2,500-year history. It’s really amazing. You go back all the way to ancient history. In fact, you talk about the Roman denarius, which is fun to read about. I had Peter Temin’s book. We discussed that on the show previously. He had a book on the Roman economy. I’m sure you’re familiar with that. It was interesting. You can see prices and distance, markets, processes working. The financial crisis of 33 AD, you could tell markets were integrated financially. You talk about this in your book, but it’s broader than just the Roman Empire. Nonetheless, I like to focus on that because it’s fun. 

Drawing from that long history, looking across it, what characteristic consistently distinguishes currencies that do become globally dominant, like the dollar, from those that fall away? There may have been other contenders that lost their way along their journey. What do we want to look for that defines a globally dominant currency?

Eichengreen: David, as you imply, part of the fun of writing this book was to go back and read and learn about the relevant literature in archaeology and numismatics because those are the sources on which one draws when one tries to write that very early monetary and financial history. The other remark I would make to preface my response to you is that one thing historians have to do is to try to resist cramming each and every case into the same straightjacket. There isn’t necessarily a uniformly applicable answer to your question. With that caveat, I will give you a uniform answer, which is, I think the ingredients for successful international currency status are size, stability, liquidity, and security.

That a currency that’s widely used across borders tends to be the currency of a state kingdom or, to provoke Brendan a little bit, empire that is engaged in a lot of cross-border transactions. Stability refers to the stability of the monetary unit itself, but also the stability of the broader polity that is responsible for that monetary unit. Liquidity refers to the liquidity of its financial markets, which is important for people contemplating buying, holding, using the currency of another jurisdiction. Security finally means that the issuing entity has to be able to secure its own borders.

I think it is important in a number of the historical cases I’ve looked at. Its ability to project power over space as well is important as well. Finally, a state or kingdom or other entity whose currency is widely used across borders has to keep up with the technological age. Technological arrangements in money and finance are always changing, evolving, developing, and countries that are able to capitalize on those new developments tend to be the ones whose currencies are widely used across space.

Beckworth: Barry, drawing upon those principles you’ve just outlined, and also drawing upon a book you did earlier, and I forget when it was exactly published, but it was on the euro and the dollar. I believe it was probably, oh goodness, in the 2000s. You told the story in this earlier book of yours how, I believe, in the 1920s, the money markets began to emerge in the US Treasury bills. Things began to take shape that made the dollar more dominant, more of a reserve currency.

When do you put down, in terms of a marker, at least the American dollar, with all respect to Brendan’s dollars, much broader than America, but in terms of the American dollar, when did it become truly a reserve international dominant currency in your view?

Eichengreen: In my view, it became the dominant international and reserve currency twice. First, in the early 1920s, following the creation of the Federal Reserve System to act as dollar liquidity provider and lender of last resort to backstop US financial markets. Importantly, the Fed was in part the creation of the German-American financier, Paul Warburg, who saw creating a market in trade credits denominated in dollars and originated largely in New York was important for freeing US importers and exporters from the tyranny of London and sterling, if you will.

Warburg was the mover behind the creation of the dollar trade acceptance market, which took off with Fed support in the 1920s. Then the Fed famously blundered in the 1930s, and the dollar retreated. Finally, the dollar emerged as the dominant international currency after World War II, when the US was the only market economy standing, the only one with deep and liquid markets.

Beckworth: All right. Paul, let’s go to you and build upon that conversation. Your book emphasizes the institutional depth and resilience behind dollar dominance specifically. Again, we’re focusing on the dollar here. What do people underestimate most about the institutional foundations of this dollar system?

Blustein: I think it’s the role played by private actors and markets. You see so much commentary where people say, “Well, other countries are really mad at us. They’re really disgusted with our policies. Governments, they’re furious about the bullying. They want to get away from the dollar.” Our adversaries are mad at us. Our allies are mad at us. Of course, governments can tell their central banks to change the composition of reserves. “Don’t hold so many dollars in your reserves and start holding other currencies instead.”

The percentage of dollars in reserves around the world is, I think, not a terribly important metric for dollar dominance. Much more important is the dollar’s role in trade and other export invoicing. Its role in loans when countries and companies issue debt in currencies other than their own. What I think is underestimated is the depth of the entrenchment of the dollar in those private markets. 

Here I’m channeling Hyun-Song Shin, the guy who was a really great economist who was until recently chief economist at the Bank for International Settlements and then has now recently been appointed governor of the Bank of Korea. Here, I owe all my insight here to him. He gave this great talk where he argued that if you really want to see the depth of the dollar’s entrenchment in financial markets, look at the foreign exchange swap markets. This is a market where the biggest actors in the global financial system, multinational companies, global banks, big insurance companies, big pension funds hedge themselves against currency fluctuations because they’re moving enormous amounts of money across borders, across oceans, across continents, whatever, on a daily basis. They need to protect themselves against fluctuations in the assets and liabilities that they hold. They use the swaps market for this.

What is the currency that just overwhelmingly dominates this market? It’s the dollar. It’s way ahead of the euro. It’s way ahead of the British pound. It’s way ahead of the Japanese yen. It’s way ahead of the Swiss franc, because these huge actors in the global financial system are using this swaps market to hedge themselves on dollar-yen, dollar-Swiss franc, dollar-euro, and all these others because they’re using dollars to import, to export, to lend, to invest, to borrow, and so forth. To undo all of that and to substitute some other currency in for the dollar would be enormously costly, enormously time-consuming, difficult, and so forth.

That’s the depth of the entrenchment of the dollar in private markets. That’s what I think people just don’t appreciate about the institutional resilience of the dollar.

Beckworth: All right. Let’s turn to Brendan. I want to talk to you about just our very notion of dollar dominance. You take us, economists, to task in your book a little bit. Let me read a quote from your amazing book. It goes like this. “The economist’s story where a central bank creates fiat money is powerful because it’s so simple, but there’s an astonishing lack of curiosity and precision in the word fiat. It allows us to say that the dollar is powerful because America is. The story lets otherwise thoughtful people say vague things like, ‘The dollar is the world’s currency because America has aircraft carriers.’” If it’s not aircraft carriers that explains our dominance, then what is it, Brendan?

Greeley: I agree with both what Barry and Paul said. I think the way I’ve looked at it is very much complementary to both this idea that the Fed laid the groundwork for dollar dominance, and creating a market for bankers’ acceptances way back in the ’20s up until the end of world trade in the ’30s. I agree with Paul as well that the sky is not falling. There are many structural reasons to use the dollar. To directly answer the question about fiat, I focus dollar dominance on eurodollars. You all know what these are, but just for the listener, a eurodollar is an offshore dollar. It’s a bank abroad, which is marking up its own accounts, its own liabilities with brand new dollars.

These are outside of the sovereign borders of the United States. They’re also largely outside of the regulatory reach of the United States. Those dollars exist. They’re huge in scale. They’re comparable, though slightly less than the amount of dollars that are produced domestically by the Fed and by commercial banks. They pose a challenge to this idea that fiat is something created by the United States government, because there certainly do seem to be dollars that are created abroad that eventually have to be managed by the Fed.

There’s this idea, if I were to speak of the historiography of thinking about money in the 20th century, that at two points or three points, once with the creation of the Fed, once again, when Roosevelt closed the gold retail window, and then in 1971 when Nixon closed the gold window full stop, that we went through a transition. Before that, there was money that was redeemable for gold or silver. After that, there was something called fiat, which has meaning as a social convention. I get frustrated by the word fiat, and I get frustrated by the idea of a social convention, which was definitely what I was taught about money was when I took macro at Tulane University in 1995.

If we just say that it’s fiat, if we just say that it’s a social convention, then we lose the power of analysis. We lose the ability to think structurally about what dollars actually are. The thing is, we know what they are. They are not generated magically by an act of the state. Dollars are deposits on commercial banks. Almost all of our dollars are created by commercial banks as part of the process of giving you a loan. They mark up a new loan. They give you new dollars, brand new dollars. They didn’t get them from anywhere. Now, the Fed is an important part of that system, but the Fed itself is also just a big bank.

It’s very important, I think, to remember that the structure of the Fed is a bank. That’s not an accident. That’s not a vestigial tale. That’s because the way we create money is by creating new loans. The Fed, when it buys new assets like Treasuries or mortgage-backed securities or agency mortgage-backed securities, it is marking up the deposit side of its ledger with new reserves exactly like commercial banks do. If we just say it’s fiat, that to me feels very hand-wavy. It means we lose the ability to actually talk about why money has meaning, why dollars have meaning.

Dollar liabilities on the balance sheet of American banks and dollar liabilities on the balance sheet of commercial banks abroad have meaning because of a long tradition of crises that were followed by new innovations and regulation. There’s this structure that we’ve built up of things like the FDIC and state comptrollers of the currency, and the national Comptroller of the Currency, and the way we’ve decided to back bank notes for Treasuries. All of these things were built over the course of 130 years and form the structure underneath that actually supports the dollar now.

If we just say it’s fiat, then the dollar is floating up there by magic, and we don’t have the ability to actually think about what gives the dollar its value. There’s real finance behind that and not magic.

Beckworth: Brendan, one of the implications of what you just said is that there are a lot of dollars being created outside the US, outside the Fed’s purview, US bank regulators’ purview. Do you see that as a serious problem? Is that a wonderful thing, a good thing, or is that like a burden on us?

Greeley: I don’t see it as a burden. I do think it’s important to understand that those dollars were created beyond the reach and beyond the intent of the United States Treasury and the United States Fed. In the ’60s, foreign banks began to mark up their balance sheet with new dollars, and Milton Friedman wrote this very important paper where he said, “Look, that’s new money creation that’s going on over there. Otherwise, we just can’t make the arithmetic work.” There’s also this process over the same period of the Fed and the Treasury sending people to the city of London to figure out what’s going on.

Fred Klopstock of the Fed comes back in the early ’60s, and he’s like, “You guys are not going to believe it, but you’d think that they’re going to send American deposits back to be redeemed for gold at Fort Knox, but instead they’re just keeping them, and they’re using them as a reserve over there.” The United States very much had to figure out what eurodollars were, and then it had to figure out whether it was going to allow them to continue, and then it had to figure out how to support them in the event of a panic, which is something that we’ve done through the Fed, through the swap lines that will temporarily provide liquidity to foreign banks, even as those foreign commercial banks aren’t directly regulated by the United States.

I think that story is important. It’s not that the eurodollars are good or bad. It’s that I want to be able to see them clearly, and I think that eurodollars challenge this story that the United States has sovereignty and, through fiat, creates brand new dollars because it sure does seem like a lot of dollars are being created abroad. By the most recent estimate from the BIS, 14 trillion of them. Again, that’s comparable to M1 in the United States. It’s a little bit smaller.

Single Reserve Currency

Beckworth: Barry, I want to come to you because what Brendan just described is this large amount of dollars being created overseas, and we’ve all been talking about dollar dominance writ large. Is this notion of a single dominant reserve currency something you would expect as an economist, naturally, due to network effects? Should we be surprised? Especially when you’re reading 2,500 years of history, should we be surprised that there is a single reserve currency, that there is a eurodollar market that emerged with some wink and nod from US bank regulators during this time?

Is this a natural part of human nature evolution? Markets will take shape. They’ll look for a common medium of exchange, or is this just a unique path dependency that just happened to emerge?

Eichengreen: No, I think network externalities are a thing. There are advantages to doing transactions using the same unit that many other people are using for transactions. We are all speaking English on this podcast, and the dollar is the monetary lingua franca for much of the world. In the same sense, I think both historically and contemporaneously, however, there is a tendency to overemphasize the sway of those network effects. If you look back in history, there have been, at various points in time, multiple competing international currencies, multiple units used for cross-border transactions.

If you look at the gold standard before 1913, actual gold movements between countries were small. They weren’t used widely to make payments and settle transactions. Rather, the pound sterling, the French franc, and the German mark were all used, and that system worked relatively well. If you look at the 1920s, both the pound sterling and the dollar were widely used for cross-border payments and transactions. The first system worked well because the underlying policies of the issuers were sound and stable.

The second system, not so much. It collapsed in the 1930s. I think to extrapolate to the future, new digital technologies will make it easier to move between currencies and do those transactions using a variety of units, just like we can use Claude Code or Google Translate to translate dialogue in different languages. One closing point, I agree with what Brendan said about the eurodollar market. I think it’s timely to recall the real start of the eurodollar market, as I understand it, was in the 1950s when the Soviets, through Moscow Narodny Bank, decided to take their money out of the United States for fear of sanctions, keep it in dollars, but deposit them in London.

Fed’s Control Over Global Dollar System

Beckworth: Paul, let’s go to you on this question of this global dollar system and that many of these dollars are outside the control of the Federal Reserve and the US government. Maybe I want you to respond to that. How much control does the US government, through the Fed or through Treasury, exert over this? A common counterpoint to the endogenous money creation, the banks would be, sure, banks create these dollars, but the Fed sets the macroeconomic conditions in which banks want to create dollars.

Alternatively, you might tell the story, the Fed and bank regulators control how much lending is done US domestically, but maybe abroad, they’re tweaking their currency swap lines or there are spillover effects. US monetary policy spills over to the world abroad, which then influences eurodollar market creations. How do you think about that? How do you think about the control, to the extent it exists, the Fed would have over global dollar markets?

Blustein: I’m a little perplexed by Brendan’s argument about monetary sovereignty. Perhaps I’m misunderstanding it, and perhaps he can straighten me out. To me, the fact that the eurodollar market exists and that so many dollars are being created outside of America’s borders and being used and deposited and lent and so forth, it means that American monetary sovereignty, if anything, is all the greater because, as I mentioned before, we can use those dollars for foreign policy purposes when an adversary is doing something we don’t like, whether it’s an individual or a firm or a bank or a whole country, we can cut them off from the dollar system. That’s quite an impingement on their sovereignty. 

I’m fascinated by this argument that Brendan makes that we don’t have sovereignty over all these dollars being created outside of the United States. They’re being created by banks that are, after all, certainly for the most part, banks that are subject to capital requirements and Basel Committee rules, international agreements, so that they’re not just allowed to create as much as they like if they’re being imprudent. I’m a little perplexed by the argument, and perhaps I’m misunderstanding it.

It’s a very interesting point. Brendan has a fascinating history where he talks where Klopstock comes back and says, “My God, look what they’re doing,” as if the American monetary authorities weren’t exactly clued in. This argument about sovereignty, I think it certainly cuts both ways. Let’s put it that way.

Beckworth: All right, Brendan, what say you?

Greeley: Yes, the issue with sovereignty is not that sovereignty doesn’t exist. While writing this book, I certainly went through an adolescent phase where I was like, “There’s no such thing as monetary sovereignty.” I don’t think that’s true. I agree with you. My argument is not there is no monetary sovereignty. My argument is we can’t assume sovereignty. You cannot start with the assumption that a country has monetary sovereignty. I think it has to be won slowly and painfully over time. The ability to make sure that all of your monetary instruments in the domestic currency clear with each other at par, in America, that was a 130-year project that I don’t think was complete until federal deposit insurance. 

I think that America has won some measure of control over offshore dollars, but they existed first. We had to notice them. Then after that, we had to figure out what is actually our lever of control? What I mean when I say we can’t assume sovereignty is money happens. People create their own money. I think it’s almost always endogenous first. Then, as regulators and as the Treasury Department and as the Fed, Americans have to chase the dollar down as people start to create new dollars, and then make a decision. Do we support this, or do we shut it down?

There was a decision made in the late 1960s, early 1970s, that it was useful to have excess dollars sloshing around in the city of London instead of coming back to Fort Knox to be redeemed. It is still useful to the United States to have those dollars. Yes, absolutely. I think it’s helpful to America that so many banks mark up their deposits in dollars. However, it does mean that the Fed has to jump in. The Fed has to assume some responsibility over this system that was not designed by the Fed. It was not designed by the American Congress. It was created. We noticed it.

I think we also have to define a distinction between regulation and control. Yes, the swap lines do provide some control. The Fed could decide, “We’re not going to give you swap lines,” and that would be devastating for a country’s economy. However, what we don’t have is any of the regulatory control that we have over American banks. There’s no FDIC looking at the balance sheets of all of these offshore dollar creators. There’s no global comptroller of the dollar currency. There’s an American Comptroller of the Currency. I think that we have to be able to distinguish between regulation, which happens on a daily statutory basis, and control, which is a lever that you can use when necessary.

Beckworth: Does anybody want to respond to that?

Blustein: Yes, sure. We don’t regulate banks in other countries. They have their own sovereignty. As I say, the reason that the Basel Committee framework and Financial Stability Board, and all these other international institutions were set up, of course, they’re soft law. They’re not hard law. They’re not treaties. They certainly create the expectation that regulators in other major financial markets, will exercise prudent regulations, especially the systemically important financial institutions in their jurisdictions. I think it’s very interesting.

Don’t get me wrong. I think it’s a fascinating point you make, that there’s all these dollars out there being created. The other point, I’m a little, again, confused by your argument when you talk about that fiat is just waving. It’s this idea that economists have that there’s magic creation of money. There’s a whole edifice of laws and policies and regulations that underpin the fiat dollar. It doesn’t have any gold backing anymore. Nixon destroyed the last vestige of that in 1971. 

Starting with the most obvious one, the government’s power to tax and require payment of taxes in dollars. There’s legal tender. There’s the requirements that the Federal Reserve maintain the purchasing power as close as possible for dollars that circulate in the United States. There’s bank regulation. There’s laws saying if a bank doesn’t pay, doesn’t give its depositors their money back when they demand them, then the bank will be shut down. All of that stuff. I’m not sure whether your complaint about the use of the word fiat takes adequate recognition of that. I’m not sure. Perhaps, again, I may be misunderstanding, but when I heard you say that, one of my favorite parts of my book is where I go through all these laws and regulations. I think attention should be paid to those issues.

Beckworth: Brendan, why don’t you get the response to this, and we’ll move on to another topic. You get the last word on this particular issue.

Greeley: I think we may actually be saying the same thing. What I was taught, and I’ve checked, I had Mankiw as an undergraduate. No, sorry. I did not have him as a professor, but we read Mankiw at Tulane. I’ve looked, and recent editions of Mankiw say the same thing. When they tell the story of why dollars, why money has meaning right now—and again, this is a very simple story. All stories must necessarily be simplified, by the way. The accusation is not that it’s too simple. That is the one that anybody who’s had any kind of economics instruction retains and then uses in their professional lives.

That explanation was there was gold, and then there were slips of paper that represented the gold. Then we took the gold away, and the slips of paper remained, and now it is a social convention. I think if we just say now fiat money is a social convention, we rob ourselves of the ability to analyze why exactly it has value. If we just say it’s a social convention, that doesn’t get us anywhere. My mortgage is a social convention. Our bond markets are a social convention, but all of the things that you’re talking about, this regulatory structure that I laid out in my book, crisis after crisis after crisis, are what give the dollar meaning.

I think that we take this moment when gold leaves the system and say, aha, that’s when it became fiat. I think we need to distinguish between redemption for gold and backing. Often historically, when you look at how they talked about backing in the late 18th and early 19th century, it was very clear that they were not talking about redemption. They were talking about the underlying assets. A commercial bank had some reserve of silver or gold to redeem its notes, but it also had a portfolio of loans. If those loans were good on good quality risks, then those dollars had meaning. That’s what backing is. If that portfolio was bad, then they did not have meaning.

Often that’s what happened in a crisis. Loans go bad, liabilities go bad, and then they can no longer maintain the redemption. I think to say that without gold, dollar doesn’t have backing ignores this century and a half of effort to make sure that assets have meaning, that the state has some ability to look at a bank’s assets and figure out whether or not they’re going to continue to have meaning. It’s the ability to offer a nationwide deposit insurance scheme. All these things that you’re talking about, I’m saying the same thing. The dollar has meaning because of this edifice of infrastructure, this edifice of regulation. You and I are saying the same thing.

I just think that when we say it became fiat when we took the gold away, we lose the ability to talk about exactly what you and I are talking about, this structural regulation.

Exorbitant Privilege

Beckworth: All right, let’s move on to the question of exorbitant privilege. I’m going to go to Barry. Barry, the book I was referencing earlier is titled Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, I believe 2012. That’s the one I was referencing earlier. I couldn’t remember the title. I want to go to you because you have a whole book on this issue and you’ve written widely on it. Is the dollar truly an exorbitant privilege? Because there’s contested claims about it. Could it also be a burden? What do you think?

Eichengreen: I think being the issuer of the leading global currency has benefits for the United States and also possibly some costs. I’m firmly of the view that the benefits outweigh the costs. The benefits include the convenience for US banks and firms of being able to do cross-border business in their own currency, that the US Treasury “historically”—important word there in quotes—has been able to borrow at lower interest rates than would be available to it otherwise because of the convenience to foreign holders, the convenience value of dollar securities, and the willingness of foreigners to hold them.

The insurance feature of being the global currency issuer, that you are the safe haven into which everyone rushes when global volatility spikes, is such that we don’t typically suffer capital flight in a crisis. Rather, we see the dollar strengthen. Finally, US sanctions, when used judiciously, are more effective than they would be otherwise, owing to the dependence of entities around the world on the dollar and the US correspondent banking system.

The argument on the other side is that with exorbitant privilege comes exorbitant duty, and we’re not always happy about the duty, or not everyone is always happy about the fact that we are extending dollar swaps to foreign central banks. I think those who are concerned misunderstand the nature of those swaps, but people complain about that. The fact that the dollar may be a bit stronger than it would be otherwise as a result of this demand out there for dollar securities may create headwinds for US exporters.

Me, personally, I think that the level of the dollar exchange rate is way down on the list of factors determining the fundamental competitiveness of US exporters behind the skills and training of our workers, the quality of our entrepreneurship, the investment in infrastructure and capital stock, quality of regulation. Item number 11 on that list is probably the dollar exchange rate.

Beckworth: Yes. You alluded earlier to, I believe, the present administration and some of the policies it has been pursuing. One of the early ones was this Mar-a-Lago proposal, or at least notion, I’m not sure it ever fully materialized, but the idea was that the dollar was so powerful, so overvalued that it was hollowing out manufacturing. I never found that persuasive. It struck me that technology, innovation, other things were driving the percent of labor in manufacturing, although you could argue maybe global manufacturing is picking up relative to the US. I get that you don’t see it as a primary culprit in what’s happened to US structural change in terms of industry, manufacturing over the past few decades.

Eichengreen: I don’t see it. I think technology and globalization, the emergence of China as a competitor, the skill-biased nature of technical change have been much more important for changes in the structure of the US economy domestically and as an exporter and importer than anything that’s happened to the dollar exchange rate. The Germans had a decades-long run of export success despite a strong currency. The Swiss are always complaining about the strength of the Swiss franc. That doesn’t prevent them from exporting watches, chocolates, and all kinds of other things.

I do think that there are strong parallels between the so-called Mar-a-Lago accord, allow us to depreciate the dollar, or we will slap you with tariffs today, and what Richard Nixon was concerned about in 1971, which allows us to depreciate the dollar or this 10% import surcharge will remain in place. Indefinitely, I don’t think either initiative did or would address the fundamental problems of the US economy. You will have noticed the dollar fell against the other major currencies by about 10% last year. That didn’t do much for US export competitiveness.

Blustein: If I could add one point, I completely agree with everything that Barry just said. The other point is that during the period, 55 years since currencies began floating against each other after the end of Bretton Woods, during all that period, the dollar has remained dominant. Its foreign exchange rate has been quite volatile. There have been periods of strength. There have been periods of weakness in the ’70s and in the early to mid-’90s and in the 2000s. Before the Global Financial Crisis, there were periods where it was quite weak, but it still remained dominant. I think these people often conflate these two concerns about the exchange rate and the dominant role the dollar plays in international trade and finance.

Beckworth: Brendan, do you have any thoughts on the burden or privilege of the dollar system?

Greeley: I agree with what has been said already. I would add one more burden, and I don’t think that tips the scales to burden, but I think it’s one that we should be aware of, is that we can think of America in a way as having the resource curse. Our resources curse is we have yet to figure out how many Treasuries we can sell. We seem to be able to sell unlimited Treasuries. I think that traditionally, when you get a resource like that in a country, one of the challenges is it tests governance. When you have this resource, then what you get is elites fighting for that resource.

There’s been a change in the kind of compromises that we have to make in America because there’s absolutely no restraining function on debt. In the past, we really had to talk in very specific ways about how we’d finance World War II. There was the Fed supported the price of debt. You had this massive nationwide effort to sell Liberty Bonds in order to keep inflation down, to soak up some of that extra earnings from the war economy. The Liberty Bonds created the world’s largest card catalog to figure out who in America had these things. We don’t have to do that anymore.

We can just finance wars. We don’t even have to have a conversation about how we’re going to pay for it. I think it’s being forced to have that conversation over how things are going to be paid for that forces us into a position where everybody has to compromise. I just think we haven’t had to compromise in a long time in America. Because we haven’t had to compromise, I think governance suffers. I think America has become a place where you go to Washington to beg an indulgence from the sovereign because the sovereign can afford it. I would put that on the burden side of the balance sheet.

China Shock 2.0

Beckworth: We are blessed with incredible riches, but those riches allow us to avoid hard tradeoffs or making decisions for the future. That is the resource curse we face here as the issue of the global reserve asset. 

One last question on this topic here, and I’ll start with you, Barry. There’s been a lot of conversations lately about a new China shock. China shock 2.0. Of course, the original one was the early 2000s. There’s been some debate about how robust that finding is and what it really means. The conversations I’m hearing, I believe the recent World Bank, IMF meetings, this was a hot topic there too. The idea being that China is once again running really large trade surpluses, current account surpluses, the percent of its economy. It’s flooding the world with all these goods. The rest of the world has to buy them up, the argument goes. As a result, China’s going to continue to buy up dollar assets, the flip side of that. What should we make of this China shock 2.0? Is there something there, or is it more of a nothing burger?

Eichengreen: There is something there. It’s clear that China is yet to wean itself from its export and investment-led growth strategy and all the structural barriers, slowing the rebalancing of the Chinese economy toward consumption, are still in place. I think Chinese leaders are still wedded to their headline growth target of 4.6% or whatever it is in 2026. Their enterprises will export exactly however many units they have to export in order for the leaders to be able to announce that they’ve hit their growth target once again. This does create strains.

I do think there was an important point to the China shock 1.0 literature, although people can quibble about details. This time around, it may be more of a problem for Europe than it will be for the United States because we have heavily weaned ourselves from imports from China. Some still come in through the back door of Vietnam or Mexico, but I think decoupling has occurred.

Beckworth: Barry, what can practically be done about a China 2.0 shock? That’s my question. It sounds like you would need some kind of global cooperation, but, man, I don’t see that happening. What would it require to bring the world into balance?

Eichengreen: I think the best things that could be done to bring the world into balance would be for China and the United States to tend to their knitting, to tend to the domestic problems that lead us to be a chronic deficit country and them to be a chronic surplus country. We know what those things are—low savings rate, low public savings in the United States primarily, and lack of consumption owing to lack of a safety net and real estate problems in China.

Future of the Global Dollar System

Beckworth: Okay. Let’s transition into the future of the global dollar system. I wanted to spend some time here on a topic that Paul does not like, and that’s crypto. Was it your dedication in your book, Paul? You have that very down statement about crypto. Let’s talk about stablecoins. Bitcoin is another entire conversation, but dollar-based stablecoins is something that’s growing. It is more of a transaction asset than bitcoins are. Dollar-based stablecoins are like 99% of all stablecoins around the world. We have the GENIUS Act. We have a “skinny” Fed master account, which may make it even more popular. Let me ask the question this way. Will it amount to anything?

Put aside your concerns about financial stability. Will it actually amount to anything, or do you see this more as a fad right now, and at some point will settle back down with traditional banking money, maybe tokenized deposits? Is there something big here with dollar-based stablecoins? Start with Brendan.

Greeley: I think of crypto as finance as if the past never happened. I think I focus, when I look at crypto, much more on the finance of it than the technology of it. When we move from bills of exchange to wire transfers, there was a brand-new technology, arguably profoundly more disruptive than the shared ledger. Yet, a lot of the traditional aspects of finance still remain the same. You still have to make sure that your banks are adequately capitalized. What I see, particularly when we look at dollar-based stablecoins, is the possibility of a broad increase in things that are called dollars that are not as tightly regulated as bank deposits, which means that, eventually, they will fail. Inevitably, banks fail.

We will then have to go in and build some sort of a structure around them to keep them safe, because the Fed will have to bail them out. If people think of something as a dollar, that becomes the Fed’s political job, whether the Fed wants to or not, whether we like it or not. That’s just the way the world works, unfortunately. I worry that we’re creating a new class of dollar without all the protections of the old class of dollar that will get the same treatment in the crisis, because once somebody believes that they’re holding a dollar, they’re going to expect it to clear at par, and they will be politically angry if it doesn’t.

Beckworth: Well, Brendan, doesn’t that suggest, though, that the dollar’s footprint will expand? To the extent stablecoin becomes a big enough issue that it has to be bailed out, then, once again, we’re expanding the dollar’s reach. Is that a fair assessment?

Greeley: Yes, I think that’s right. I think a completely different way to look at it, I always come at it from the prudential standpoint, but I’m not a risk-taker. I’m glad that bankers are risk-takers. I’m glad that people who make new kinds of money are risk-takers. That’s how we figure new things out. Yes, you could look at our tolerance of stablecoins right now as something similar to the tolerance of eurodollars in the ’60s. The United States has decided it’s going to be good for us, and so we’re going to let them grow and see how it works. I don’t know that that would be my choice, but I see the argument. It does support dollar expansion in the future, I think.

Beckworth: Yes, I just look back to 2008, 2020. We saw that the Fed stepped in and saved money markets, one form or the other. We know going forward they will probably step in again. To the extent stablecoins interact with money markets, my suspicion, and I think the market’s suspicion is, this will be the same story. Paul, what do you think about the future of stablecoins? Will they amount to something, or will they be a nothing burger?

Blustein: You just can look at the fact that the Trump family has invested in their company, has issued the world’s fourth-largest stablecoin. It’s called USD1. It’s not nearly as big as the biggest stablecoin issued by Tether. It’s not nearly as big as even the second-biggest stablecoin issued by Circle, but they have money in it. I think you have to be awfully brave to think that it’s just going to be a passing fad, because they’re going to have a lot of control over what policy is.

What worries me about stablecoins, you hear this argument, “Well, we’ll spread the dollar far and wide.” I can’t tell you the number of congressional hearings I have watched, from big crypto, as I like to call it, the crypto lobby, or they’re all testifying, and they’re saying, “If we spread stablecoins far and wide, this’ll be great for US national security. It’ll be great for the dollar.” The people on the hearing are nodding their head, “Oh my goodness, we have to be so worried about dollar dominance. Yes, yes, yes. I’m all for this.” The problem is that I think the spread of stablecoins far and wide is going to undermine the greatest benefit that the dollar gives the United States.

Again, to come back to the geopolitical advantage of sanctions, because stablecoins, unlike dollars that are transacted on traditional rails, can be used, as we’ve seen time and again, for illicit purposes. It’s very difficult to enforce anti-money laundering, know-your-customer rules with them. There are requirements in the GENIUS Act for stablecoin issuers to do that for them. The crypto industry has a lot of very clever arguments about, “Oh, no, the blockchain on which stablecoins trade actually makes it easier for law enforcement.” That argument elides all the ways in which stablecoins can be used for illicit purposes by really resourceful illicit actors.

I understand the intuitive appeal that if we spread dollars all over the world, that that will make the dollar stronger and it may help with demand for Treasury securities, because stablecoins have to be backed by, among other things, Treasury bills. I think that’ll be modest, and it won’t nearly compensate for the loss, the undermining of the greatest benefit that I believe the dollar dominance affords the United States. I wish it were a passing fad. I don’t think it is.

Beckworth: All right. Barry, you get the final word.

Eichengreen: I think digital technology will change the way we use money, including across borders. I believe that distributed ledger technology, blockchain, in other words, will provide a useful set of payment rails. It’ll be possible to transfer funds, make payments internationally at lower costs faster than is possible now using the corresponding banking system and the dollar as we presently know it, but we don’t know what kind of unit will run on those new payment rails. Will it be stablecoins? That’s the horse that US officials are betting on.

Or will it be a combination of central bank digital currencies and tokenized bank deposits? That’s the European model and the Chinese model as of the very end of last year. I think I would put my money on the combination of CBDCs and tokenized bank deposits, which sit within the existing regulatory framework. Banks that know how to enforce know-your-customer and anti-money laundering rules will be tokenizing their deposits in ways that they can be transferred easily on a private blockchain. We will still have a way of dealing with bad actors who would otherwise want to take advantage of those systems.

I think, like my colleagues, that there are real questions about whether stablecoins will survive that competition. Do we want to move to a world where Amazon Coin and Walmart Coin and First Mining Company of Wyoming Coin are all circulating domestically and internationally? Will the regulators be able to keep up with the crypto bros as they move into this space? I have my doubts.

Beckworth: This is a very interesting conversation in time. It will be interesting to see what happens with stablecoins. It’s fun to look back at 2019 when Facebook introduced Libra, and sent all the central bankers into overdrive panic mode. They’re freaking out. That’s when you see really the big push for CBDC. Now we’ve come full circle back to stablecoins, at least the dollar-based version of it, being the dominant digital technology. With that, our time is up. It’s been a great conversation. 

Our guests today have been Barry Eichengreen. His book is titled Money Beyond Borders: Global Currencies from Croesus to Crypto. Our other guest has been Paul Blustein. His book is King Dollar: The Past and Future of the World’s Dominant Currency. Our final guest was Brendan Greeley. His book was The Almighty Dollar: 500 Years of the World’s Most Powerful Money. Be sure to get your copy and check out these books. Gentlemen, thank you for joining us.

Blustein: Thank you. It’s been a pleasure.

Eichengreen: Thank you, David.

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.