By Jim O’Neill
Bloomberg News - July 10, 2013
Back in the 1960s, a French finance minister called the U.S.’s
ability to borrow in its own currency -- thanks to the dollar’s
pre-eminence and reserve-currency status -- an “exorbitant privilege.”
It’s an advantage that the rest of the world has to pay for, one way or
another. This has lately given many emerging-market governments cause
for complaint.
If they had the will, one or two of them could do something about it. Maybe it’s time they did.
The issue has been highlighted in recent weeks as the Federal Reserve (FDTR)
unsettled global markets by signaling its intent to start tightening
monetary policy -- at least, that’s what investors thought it said.
There was a sell-off in global fixed-income markets, and many emerging
economies saw the value of their bonds, equities and currencies drop.
Not long ago, emerging-market governments complained about
the Fed’s stimulus policy. They pointed to destabilizing inflows of hot
money and called it a “currency war,” an attempt to export unemployment
and price emerging-economy exports out of the U.S. market. Now they’re alarmed because the policy is ending. Such is life on the receiving end of the exorbitant privilege.
New York
Federal Reserve President Bill Dudley, a former colleague of mine at
Goldman Sachs Group Inc., once warned me, “Be careful what you wish
for.” The context wasn’t quite the same -- we were discussing the
dangers of shrinking the U.S. current-account deficit too quickly while
global demand was still weak -- but it’s still good advice.
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