Wednesday, November 11, 2009

Reserve Currency

The Economist has an article that makes sense discussing the role of the dollar as a world currency. The basic point is that there is no good alternative right now. A very nice discussion of this issue also appeared in the Economic Report of the President, which had this graph:

This appendix made the important point that although the Euro zone is large, there is no unified European debt, only the debt of individual countries. This makes it harder to hold reserves in euros than in dollars. Depth of our capital markets is what makes the dollar a reserve currency.

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