Justin Fox has an opinion piece in Time about the newest threat to the dollar’s status as the global reserve currency:
Over the short term, this can seem like a positive; we can get away with running a federal deficit that could hit $2 trillion this year only because of the dollar’s status as global reserve currency. But borrowing trillions isn’t really a ticket to long-run prosperity. In fact, the current economic crisis may have been spawned by huge imbalances in global trade and capital flows that are in part the product of the dollar’s special status. Global demand for dollars supplanted demand for U.S. products and services, argues Columbia University economist and longtime SDR fan Joseph Stiglitz, resulting in trade deficits, the decline of U.S. manufacturing — and years of supereasy mortgage credit.
Fox makes a good point that the demand for the dollar allowed to us to spend its way into the current crisis. Sure it would be create to take the US off the drug that is super easy credit. Unfortunately that would only aggrevate our long term debt problem. In case you haven’t checked recently, the national debt is over $10 trillion and we eventually have to pay that back. So we have a really dilemma here: we can use SDR and take away our ability to borrow easily, but then we will have a hard time paying off the debt we have accumulated in the past. Not an easy puzzle to solve
Picture by Flickr user shyb used under a Creative Commons license