This international dependence on the dollar is, as one observer put it, America's "exorbitant privilege." But today the dollar has been shaken by the effects of the financial crisis and it's being challenged by the rise of the euro and China's renminbi.
What would happen if the dollar ceases to be the world's standard currency? Would it depress American living standards and weaken the country's international influence? Noted economist Barry Eichengreen, one of the nation's foremost experts on currency issues, joined us for a Milken Institute Forum to offer his perspective on these questions.
His latest book, "Exorbitant Privilege," traces the dominance of the dollar through the 20th century. But now, with the rise of China, India, Brazil and other emerging economies, America is no longer such a towering presence.
The dollar will lose its international currency status, Eichengreen warns, only if the U.S. repeats the mistakes that led to the financial crisis and if it fails to put its house in order. He believes the greenback's fate hinges not on the actions of the Chinese government but on policy decisions here in the United States.
Barry Eichengreen is a professor of political science and economics at UC Berkeley. His previous books include "The European Economy Since 1945" and "Capital Flows and Crises." He has written for the Financial Times, The Wall Street Journal, Foreign Affairs, The Milken Institute Review and other publications.