ABSTRACT
This chapter analyzes the overhang, and whether perceptions of it are likely to constrain policy. It examines foregoing analytical framework to assess the outlook for both the existing overhang and the possible re-creation of new overhangs even if the present one is eliminated or significantly reduced. Thus the "private overhang" could henceforth affect the dollar directly by forcing its depreciation in the exchange markets. In addition, the large stock of private foreign dollar holdings which had been created through the Eurodollar market and hence did not represent direct US liabilities now became a threat to the dollar. The historical record thus indicates clearly that the overhang did not cause much of an economic problem for the United States in the past, when the dollar was convertible into US reserve assets. Despite continued warnings of intensifying degree, the overhang never collapsed. The overhang does of course provide foreign holders of dollars with a certain amount of additional leverage over US policy.
