Dollar Rivals

Written for a PIIE conference on the 50th anniversary of floating exchange rates, this paper deals with possible alternatives to a unipolar dollar-based system. It considers (1) measures of international currency use; (2) potential challengers to the dollar; (3) network externalities; and (4) the plausibility of gold and digital currencies, as alternatives to regular currencies. On the one hand, network externalities operate in favor of the status quo: the dollar as the single leading international currency. On the other hand, abuse of exorbitant privilege – which now includes not just debasing the currency but also excessive use of sanctions – operates in favor of challengers. A good guess is that the dollar will continue to lose market share slowly to others, but will remain in the lead.