In the 1970s Nixon's Secretary of the Treasury, John Connolly, famously told the Europeans that the dollar was 'our currency, but your problem.' DeGaulle's Minister of Finance had earlier complained that the Americans enjoyed, in global financial affairs, the 'exorbitant privilege' of seigneurage. In other words, the Americans controlled the mint, or the printing presses, given the closing of the gold window.
Right here before the G20 meeting, China has officially taken notice.
The head of the Chinese central bank has published an article suggesting that the dollar be replaced as the world's reserve currency with a ramped up set of special drawing rights at the International Monetary Fund.
Now, effectively replacing the dollar as the leading reserve currency would effectively clip the wings of the U.S. government. Of course, it is not likely to happen in the short run, but the Chinese are, in effect, drawing a line in the sand and sooner or later, people may start to cross over. In the meantime, to forestall the development of a trend, the Americans will be compelled to consult, or at least informally consider, the perspectives, instincts and concerns of its largest creditor.
It's also worth remembering that the dollar is the de facto global reserve currency because of the magnitude of the American economy, and the practical decisions taken by central banks and in financial markets around the world. Any shift away from it is liable to be organic, rather than by fiat. That said, organic shifts can be sudden, rather than incremental, and occur as phase changes, rather than trends.
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