In the New York Times, columnist and Nobel-Prize-Winning Keynesian economist Paul Krugman pooh-poohs the idea that the US dollar system could collapse. His reasoning for the strength of the dollar is that it continues to serve as the world’s reserve currency. He writes,
I’ve spent more or less my entire professional career being bombarded with dire warnings that the dollar’s global status was at imminent risk of collapse, and with it American power. Even if such a collapse were likely, it would matter much less than people think; America certainly derives some advantages from what was once called the “exorbitant privilege” of issuing the world’s dominant currency, but they’re not that big.
In any case, predictions of the dollar’s demise generally fail to appreciate the extent to which the dollar’s role is a result of network externalities that no potential rival offers. International banks make payments in dollars because dollar markets are huge, largely because the dollar is used so widely. Importers and exporters write contracts in dollars because everyone else does and hold dollar balances to make those payments. And so on.
In typical Krugman fashion, though, there’s an important caveat. The US dollar certainly could collapse, under certain conditions:
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