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The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance [NOOK Book]

Overview

The U.S. dollar’s dominance seems under threat. The near collapse of the U.S. financial system in 2008–2009, political paralysis that has blocked effective policymaking, and emerging competitors such as the Chinese renminbi have heightened speculation about the dollar’s looming displacement as the main reserve currency. Yet, as The Dollar Trap powerfully argues, the financial crisis, a dysfunctional international monetary system, and U.S. policies have paradoxically strengthened...

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The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance

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Overview

The U.S. dollar’s dominance seems under threat. The near collapse of the U.S. financial system in 2008–2009, political paralysis that has blocked effective policymaking, and emerging competitors such as the Chinese renminbi have heightened speculation about the dollar’s looming displacement as the main reserve currency. Yet, as The Dollar Trap powerfully argues, the financial crisis, a dysfunctional international monetary system, and U.S. policies have paradoxically strengthened the dollar’s importance.

Eswar Prasad examines how the dollar came to have a central role in the world economy and demonstrates that it will remain the cornerstone of global finance for the foreseeable future. Marshaling a range of arguments and data, and drawing on the latest research, Prasad shows why it will be difficult to dislodge the dollar-centric system. With vast amounts of foreign financial capital locked up in dollar assets, including U.S. government securities, other countries now have a strong incentive to prevent a dollar crash.

Prasad takes the reader through key contemporary issues in international finance—including the growing economic influence of emerging markets, the currency wars, the complexities of the China-U.S. relationship, and the role of institutions like the International Monetary Fund—and offers new ideas for fixing the flawed monetary system. Readers are also given a rare look into some of the intrigue and backdoor scheming in the corridors of international finance.

The Dollar Trap offers a panoramic analysis of the fragile state of global finance and makes a compelling case that, despite all its flaws, the dollar will remain the ultimate safe-haven currency.

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Editorial Reviews

From the Publisher

"Thoughtful . . ."--Jeff Sommer, New York Times

"[A] surprising argument. . . . [L]ucid . . ."--David Wessel, Wall Street Journal

"Richly detailed study of global finances, examining how and why the dollar became the favored currency of international trade."--Kirkus

"To understand how the world of international finance works, what the agendas are and what is at stake, this work is indispensable."--Henny Sender, Financial Times

"In his authoritative new book on the dollar, Eswar Prasad . . . argues that China and other foreign countries that own around half the outstanding US federal government debt are trapped in a risky game where the US may be tempted to renege on its debt obligations by printing more dollars."--John Plender, Financial Times

"A lively and compelling analysis on currency wars in the wake of the financial crisis--and the likely persistence of the U.S. dollar as the world's pre-eminent currency."--Harold James, Central Banking Journal

Kirkus Reviews
2013-12-21
Richly detailed study of global finances, examining how and why the dollar became the favored currency of international trade. In 2008, when the financial markets nearly collapsed in the United States and then, continent by continent, around the world, something counterintuitive happened: Money flowed back into the U.S., as American investors pulled their money out of foreign commitments and foreign investors sought the relatively safe haven of the dollar, mostly as expressed through treasury bonds. "The dollar," writes Brookings Institution senior fellow Prasad (Trade Policy/Cornell Univ.; co-editor: New Paradigms for Financial Regulation: Emerging Market Perspectives, 2012, etc.), "which should by all rights have plunged in value, instead rose sharply against virtually every other currency. It even rose against all other major reserve currencies except for the Japanese yen." The dollar has weathered other challenges, as well, including the threat of a default on the part of Congress and, about the same time, the Standard & Poor's 500 index rating cut, reflecting pessimism over the inability of the U.S. government to address debt. No other currency, Prasad argues, is as strong--adding, cautiously, "relatively speaking." The result is that no other economy is positioned to supplant the dollar, a pointed thought insofar as China is attempting to expand its official currency, the renminbi, beyond its national borders. Prasad warns that nothing lasts forever, so the question is not whether the dollar will remain the leading reserve currency forever but, instead, how much time it has left to hold that position--presuming that some other currency rises to dominance or even that "the entire system of reserve currencies will be replaced by a different arrangement." For international investors and economic policy wonks, particularly those following the development of Chinese economic strategy.
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Product Details

  • ISBN-13: 9781400849963
  • Publisher: Princeton University Press
  • Publication date: 1/26/2014
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition description: Course Book
  • Pages: 432
  • Sales rank: 654,925
  • File size: 9 MB

Meet the Author

Eswar S. Prasad is the Tolani Senior Professor of Trade Policy at Cornell University, a senior fellow at the Brookings Institution, and a research associate at the National Bureau of Economic Research. He is a former head of the IMF’s China division.
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Table of Contents

List of Figures and Tables ix
Preface xi
PART ONE Setting the Stage
1. Prologue 3
2. What Is So Special about the Dollar? 11
PART TWO Building Blocks
3. The Paradox of Uphill Capital Flows 31
4. Emerging Markets Get Religion 47
5. The Quest for Safety 63
6. A Trillion Dollar Con Game? 89
PART THREE Inadequate Institutions
7. Currency Wars 125
8. Seeking a Truce on Currency Wars 158
9. It Takes Twenty to Tango 171
10. The Siren Song of Capital Controls 188
11. Safety Nets with Gaping Holes 201
PART FOUR Currency Competition
12. Is the Renminbi Ready for Prime Time? 229
13. Other Contenders Nipping at the Dollar’s Heels 262
14. Could the Dollar Hit a Tipping Point and Sink? 283
15. Ultimate Paradox: Fragility Breeds Stability 299
Appendix 309
Notes 317
References 375
Acknowledgments 393
Index 395
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