I have been asked a surprising (to me) number of times over the years whether the US dollar was in danger of losing its status as the global “reserve currency”–that is, the currency in which most international transactions are denominated. The assumption behind the question is that it’s a good thing for the US economy to have the US dollar as the reserve currency. After all, when imports and exports are denominated in US dollars, US firms involved in international trade don’t need to worry about exchange rates shifting against them. When two non-US dollar currencies are traded in foreign exchange markets, what usually happens behind the scenes is that currency A is first switched into US dollars, and then the US dollars are traded into currency B. With all these functions of the US dollar, many companies, financial firms, and government around the world want to hold a stock of US dollars. Moreover, because investors aroud the world view the US dollar as a “safe asset,” there is a steady demand for US Treasury debt, so the US government does not need to worry (much) that there will not be buyers when it wants to borrow money.
President Trump seems to like the idea of the US dollar as a global reserve currency, too. As one example, at a campaign event last September, the subject came up of other countries that were trying to agree on an alternative currency (or mix of currencies) to challenge the preeminence of the US dollar. Trump said: “You’re not going to leave the dollar with me. I’ll say you leave the dollar. You’re not doing business with the United States because we’re going to put 100% tariff on your goods.”
Thus, I have been surprised to see comments from the Council of Economic Advisers, Steve Miran, to the effect that having the US dollar as the world’s reserve currency imposes substantial costs on the US economy. As one example, consider “CEA Chairman Steve Miran Hudson Institute Event Remarks” (April 7, 2025). For a similar argument made before Miran joined the CEA, see “A User’s Guide to Restructuring the Global Trading System” (Hudson Bay Capital, November 2024). For example, here’s Miran:
Today I’d like to discuss the United States’ provision of what economists call “global public goods,” for the entire world. First, the United States provides a security umbrella which has created the greatest era of peace mankind has ever known. Second, the U.S. provides the dollar and Treasury securities, reserve assets which make possible the global trading and financial system which has supported the greatest era of prosperity mankind has ever known. Both of these are costly to us to provide. ….
On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits. These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other.
Let me clarify that by “reserve currency,” I mean all the international functions of the dollar—private savings and trade included. I’ve often used the example that when private agents in two separate foreign countries trade with each other, it’s typically denominated in dollars because of America’s status as the reserve provider. That trade entails savings housed in dollar securities, often Treasurys. As a result of all this, Americans have been paying for peace and prosperity not just for themselves, but for non-Americans too. …
But our financial dominance comes at a cost. While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted. This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage, and forcing a decline of our manufacturing workforce by over a third since its peak and a reduction in our share of world manufacturing production of 40%. …
There are other unfortunate side effects of providing reserve assets. Others may buy our assets to manipulate their own currency to keep their exports cheap. In doing so, they end up pumping so much money into the U.S. economy that it fuels economic vulnerabilities and crises. For example, in the years running up to the 2008 crash, China along with many foreign financial institutions, increased their holdings of U.S. mortgage debt, which helped fuel the housing bubble, forcing hundreds of billions of dollars of credit into the housing sector without regard as to whether the investments made sense. China played a meaningful role creating the Global Financial Crisis.
Miran’s policy conclusion is that because the US dollar as a global reserve currency is bad for the US economy, other countries should pay the US for their use of the dollar. He suggests that this could happen by other countries paying US import tariffs, or they “can boost defense spending and procurement from the U.S.,” or other countries could reimburst us by building factories in the United States, or other counties “could simply write checks to Treasury.” He has raised the possibility that just as the US would like other countries to share the burden of defense spending, other countries should also share the “burden” of the global reserve currency, perhaps by having a blend of currencies take over from the US dollar.
Miran is asserting a number of economic claims here. But before mentioning them, just notice the overall framing of his argument: the chair of the CEA views the reserve currency status of the US dollar as a cost. In his view, the US economy would be better-off if the US dollar was not the global reserve currency. I do not think this view is widespread, whether among the economists, the US general public, or even among policymakers in the US and around the world.
One of Miran’s implicit claims is that the exchange rate of the US dollar is artificially high, because of the global reserve status of the dollar. Another is the claim that the if the US dollar was not artificially high, it would move in away that would eliminate the US trade deficit. There is a claim that the stronger US dollar is the main source of the decline in US manufacturing jobs. There is a claim that when the US economy and government want to borrow money, then foreign investors who provide that money are “forcing” credit upon the US economy.
I will not try to dissect all of these claims in details, but at a minimum, these claims are highly disputable. For example, while understanding the value of the enormous and volatile foreign exchange markets remains a work in progress, the standard factors that lead investors to buy and sell currencies have to do with changes in national interest rate, inflation rates, and productivity rates. Also, the Federal Reserve can and does adjust the supply of US dollars, and it can take the demand for the US dollar as a global reserve currency into account in doing so.
The standard arguments about the size of the US trade deficit refer to factors like the US being a high consumption and low-saving economy, and thus a magnet for buying imported goods, while China (for example) is a low consumption and high-saving country, and thus focuses on exports. These fundamental patterns of national consumption and saving are not driven by the exchange rate. The argument that a higher US dollar is responsible for the loss of manufacturing jobs is a peculiar one, in the sense that US manufacturing jobs are indeed down–a genuine social issue deserving of a real policy response, but US manufacturing output is not down. The ability of US manufacturing firms to produce output with less labor is the key issue here, which relates both to the use of robots and automation and to an emphasis on US production of more complex and higher-valued goods. There’s no reason to think that it’s about exchange rates.
Miron’s claim that when the US government or US financial market want to borrow lots of money, and it leads to economic stress, the real problem is that foreign investors “force” their funds upon America–well, that claim just seems silly to me. Indeed, Miron apparently wants foreign investors to “force” their money on the US if they are building production plants in the US, but not to “force” their money on the US if they are buying US government debt. Overborrowing in the US economy is fundamentally a US problem, not an outcome forced upon us.
The subject of the US dollar as the world’s reserve currency has other aspects I haven’t touched upon here. For example, the US has been using economic sanctions on Russia based on the international payment system. This is possible because of the central role of the US dollar as a reserve currency, and might well be impractical otherwise. But again, the fundamental issue here is whether the US dollar as a global reserve currency should be viewed as a burden or a benefit to the US economy.
