The Dollar's 'Exorbitant Privilege' Is a Terrible Thing to Waste

The international financial system acts in funny ways. For example, the U.S. dollar has tumbled over the past 15 months, but inflation hasn't accelerated all that much, market interest-rates have barely budged and foreign-exchange reserve managers keep accumulating the greenback.

This raises a few questions, starting with why U.S. policy makers don't try to push the dollar down even more aggressively to aid exporters. After all, the Bloomberg Dollar Spot Index has dropped about 12 percent since the start of 2017, but the trade deficit has only gotten bigger. Why do foreigners keep buying U.S. assets if the dollar is dropping? What would it take for the dollar to lose its "exorbitant privilege" as the preeminent global reserve currency?