"There's been a lot of discussion of the potential rise of the Renminbi as an international currency. In particular, Jeffrey Frankel has recently written a paper on the subject (blogpost), backed in part on research we did in our papers [1] [2] on the dollar. Now, the New York Fed's Linda Goldberg, Mark Choi and Hunter Clark have re-examined some of benefits of being an international currency in a post entitled What If the U.S. Dollar’s Global Role Changed?.
Some have suggested that the large benefits extracted by the United States from the dollar’s privileged international status could be undermined should the currency’s role decline. We examine this claim by grouping the potential consequences of a change in the dollar’s relative international status into five “buckets.” These consequences are summarized in the table below and discussed in more detail..."at http://www.econbrowser.com/archives/2011/10/the_dollar_and_3.html
Possible Effects of a Reduced Role of the Dollar
Bucket Impact Comments Seigniorage revenues to the United States Small reduction Seigniorage revenues are relatively low; dollar cash holdings outside the United States are not likely to change much. U.S. funding costs Increase from low levels While the United States does not have an “exorbitant privilege” in funding, reduced demand for dollar reserves can raise U.S. funding costs. Higher funding costs on debt raise interest payments to external creditors. This tightens domestic spending constraints, and some domestic expenditure could be crowded out. Dollar value Dollar depreciates; imports become more expensive Dollar depreciation arises from lower net demand for dollars. U.S. insulation from foreign shocks Reduced U.S. autonomy in policy International trade invoicing patterns change and U.S. import prices and consumption become more exposed to foreign shocks and exchange rate movements. U.S. global influence Reduced influence Some rebalancing of country powers in international negotiations and institutions may occur.
