The Dollar Is Still Central To The Global Economy. That May Not Last. : Planet Money The dollar's role in the global economy is a boon to the U.S. But in the coming years, its place in the world may slip.

The Dollar Is Still Central To The Global Economy. That May Not Last.

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: Robert Smith, from NPR's Planet Money Team, explains a huge American advantage that is not guaranteed to last.

ROBERT SMITH: Take Roberto Ticoulat, a businessman in Brazil.

SMITH: I export instant coffee from Brazil all over the world, I mean more than 40 countries that we export.

SMITH: And even though he buys green coffee beans in his native currency, the real, he sells the instant coffee powder he makes for dollars even to places far from the U.S.

SMITH: Singapore, Malaysia, Uruguay, Russia, Kazakhstan, Turkmenistan, the majority of our trade is in dollars.

SMITH: Jonny Mears is a South African who buys lighting components from China. Once again, they won't take the South African rand. He has to use dollars.

SMITH: Maybe because it's a common frame of reference for everyone. Me, being a South African, I know where the rand stands relative to the dollar. You know, if you're from Britain I guess you know where the pound stands relative to the dollar. Everyone needs a common reference point.

SMITH: Now here's where it gets good, for the Unites States at least. Economist Barry Eichengreen from U Cal Berkeley says that the U.S. gets a huge benefit from being a world currency. We don't have to pay currency exchange fees for most of our trade and the other countries do. That's an instant competitive advantage. And the demand for all those dollars means that foreign governments have to hold massive amounts of U.S. currency, which they then invest back in our Treasury bonds.

EICHENGREEN: U.S. interest rates are lower than they would be otherwise because foreign central banks and governments find it convenient to hold our treasury bonds, our debt instruments, and they lend to us more freely than they would otherwise.

SMITH: Foreign central banks wake up one morning and say uh-oh, U.S. debt isn't as safe as we thought, where do they go?

SMITH: To the euro, which is looking mighty sickly these days? Or to Chinese currency, the renminbi, which doesn't even move freely in and out of the country? The answer is - this week at least - the world is sticking by the U.S. dollar. But tomorrow, that could change. Eichengreen says with all the new technology, maybe the world can handle more than one reference point these days.

EICHENGREEN: Everybody now can look at their smart phone and figure out what the price of a euro or a Chinese renminbi is in terms of dollars.

SMITH: Robert Smith, NPR News, New York.


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