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A new posting from Tony Norfield's Economics of Imperialism. Paul F ++++++++++++++++++++++++++++++++++++++ Dimensions of Dollar Imperialism The US has long been thought to enjoy an ‘exorbitant privilege’ based on the dollar’s role as the major global currency. This article looks at the different elements of the dollar privilege and how these work, not only in ‘normal’ times but, especially, in the current crisis. 1. Global role of the dollar All paper currencies are so-called ‘fiat’ currencies, with a value set by the governments that issue them, not by their intrinsic value. Currency notes cost a few cents each to produce, so their much higher nominal value and buying power of $1, $5, $20, $100, etc, is based upon an established system of commercial law that means they can be exchanged for goods up to the same price. As long as the power of the state is unquestioned, at least in this regard, then there is no need to waste resources producing currency that has an intrinsic value in line with its nominal value. In other words, there is no need to have a $20 bill that actually costs $20 to make. This works well within the national boundaries of the state, which are usually the limits for the national fiat currency being legal tender. But why then should a European, Asian, Latin American or African country accept dollar payments for their products when they are outside the national territory of the US? The dollar payments will not even necessarily be in the form of paper bills, and may only be a credit registered in a bank account. The reason for the dollar’s acceptability is US economic and political power. The US established a system of global finance after 1945 that was dollar-based, and the US was, and still is, the largest economy in the world. US pre-eminence is diminishing, but the institutions of US power remain in place and have so far faced little challenge. In foreign exchange trading, for example, the US dollar was on one side of 85% of all global currency deals in 2010, despite the alternative of the euro. Important commodity prices are quoted, and contracts are set, in terms of US dollars, from oil to agricultural products and metals, and this phenomenon also applies to major industrial goods such as aircraft, components for electronics products, military equipment and the products of other many other industries traded internationally. In financial securities markets, the US also stands out as the biggest in the world. The New York Stock Exchange is the largest equity market, by market capitalisation, and the US is also home to the world’s largest bond market. So the US currency has a global role based on US power... Read the rest at < http://economicsofimperialism.blogspot.com/2011/10/dimensions-of-dollar-imperialism.html >. ________________________________________________ Send list submissions to: Marxism@greenhouse.economics.utah.edu Set your options at: http://greenhouse.economics.utah.edu/mailman/options/marxism/archive%40mail-archive.com
