Dr. Eswar Prasad

i have argued that there are some attributes that have led to the dollar's persistent dominance the us is the largest economy in the world one is the most dynamic has the deepest and most liquid financial markets meaning it's very easy to buy a lot of us dollar assets move into and out of those assets

But what is particularly important in the dollar's dominance and the foundation on which it rests is the institutional framework that includes the independence of the central bank, the rule of law, the system of checks and balances.

Each of these is very important to maintain the trust of both domestic and foreign investors.

And one could argue

that in terms of domestic policies, the huge amount of debt the US government has, and the fact that each of these elements of the institutional framework has taken a pretty significant beating in recent times, the dollar should be facing a significant threat.

But the reality is that the world still needs a payment currency.

The world still needs a reserve currency.

And if you look out on the horizon to see what the alternatives might be, there really isn't any good alternative out there.

So almost by default, the dollar remains dominant.

Now, as you pointed out, Dan, this is a situation that nobody in the world likes.

There are some disadvantages for the US to have the dollar stronger than it would otherwise be because it makes our exports a little less competitive in the rest of the world.

And countries around the world would desperately like to diversify away from the dollar.

You know, so central banks around the world have been moving into some smaller reserve currencies like the Australian dollar, the Canadian dollar.

They've been buying some gold.

But the reality is that if you want to park a large amount of money in a place that is seen as relatively safe, that is relatively liquid, there really isn't much alternative to the US dollar.

So this is not so much a reflection of US strength as just weakness in the rest of the world.

Success is probably finding a way to make the world better in some sense.

And to me, as an academic, that has meant trying to understand what is happening around us.

So when I embarked on the future of money, for instance, what I wanted to understand was how are these changes in the nature of money going to affect financial markets?

How are they going to affect central banks?