If any of these conflagrations do happen, Eichengreen and his co-authors think changing technology could be an accelerant. It's traditionally assumed that reserve currencies function similar to monopolies: Things like convenience and network effects push everyone to rely on one dominant currency. But with modern technology, massive reserve holdings can be instantaneously transferred between assets and between currencies. Digital technology allows everyone to comparison shop between different assets and currencies at the click of the button.

    Eichengreen thinks this comes with two consequences.

    First, we may not live in a monopoly reserve currency world after all. If China and the eurozone can get their acts together and America slips, the world could wind up with two or three global reserve currencies all tussling together.

    Second, if the change does come, it could come fast. When America created the Federal Reserve system in 1913, for example, the U.S. dollar had virtually no international role. But the Fed and World War I changed things, and within a decade, the dollar had become one of the dominant reserve currencies. Depending on what China, the eurozone, the United States, and other players do, such a change could happen again. And with modern technology, it might be even swifter than last time.

posted by user-inactivated: 318 days ago